As growth opportunities go, the massive potential on offer in Africa will not be unnoticed, but it has been underappreciated for a long time now for a variety of reasons. In this article, Paul Cardoen, CEO of FBNUK, offers his insight into the commercial opportunities African markets offer those who can navigate the region’s challenges.


While the potential of Africa has been the subject of much commentary in recent years, the continent still appears to be lagging behind other emerging markets when it comes to attracting foreign investment. The United Nations (UN) World Investment Report 2017 said Africa saw foreign direct investment (FDI) flows of US$59bn in 2016, compared to US$142bn in Latin America and the Caribbean, and US$443bn for developing Asia.1

Despite Africa’s smaller share of FDI relative to the rest of the world, FDI flows are going into markets such as Nigeria, Mozambique, South Africa, Angola and Côte d’Ivoire, and these collectively comprise 37% of FDI market share in Africa.2 In terms of sectors, Africa is diverse. While commodities continue to dominate FDI flows, foreign investors are looking at infrastructure, agribusinesses, financial services, technology and telecommunications, and consumer products as they seek medium to long-term returns.

Global trade figures also suggest that the potential of the African continent remains largely untapped, accounting for a mere 2.4% of global exports, with Sub-Saharan Africa comprising just 1.7%,3 but Paul Cardoen, CEO of FBNUK, believes that the situation may change very quickly. “While Africa is currently a marginal player in global trade, there is great growth potential – particularly as the region improves its agricultural productivity, and develops niche and high-quality products. The demographic figures and trends – particularly the emergence of a middle class – could also spur an increase in intra-regional trade.”


The opportunity

Emerging markets present significant opportunities for foreign investors. Cardoen points out that forward-thinking investors already sense that Africa will deliver impressive prospects. He says: “While capital flows entering the region remain incremental, this also means there are rich pickings for savvy investors.” In 2015, FDI into Africa accounted for just 8% of the global total FDIs.4

The sources of this investment into Africa are varied, although it is predominantly driven by flows from Western Europe from a combination of portfolio and strategic investors. Those engaging in FDI financing in the African markets include development financial institutions, who typically possess preferred creditor status, and can supply cheap financing to private sector enterprises. Equally, major trading houses looking for long-term commodity sources are also pivoting towards Africa in increasing numbers.

Private equity managers, many of whom are looking to invest their record sums of dry powder, have refocused their efforts on the African market with around US$16bn being allocated into the region since 2011.5

Many investors remain bullish on Africa. An EY study found that investors – who already have a footing in Africa – described the continent as the most attractive investment destination in the world whilst 81% predicted Africa would become even more attractive during the next three years.6 There is certainly solid grounding for this optimism with eight of the world’s top 20 fastest growing economies being located in Africa.7


Winds of change

Positive change in Africa is indeed gaining momentum. A growing number of countries are holding multiparty elections which meet international standards, while governance has clearly undergone a constructive evolution. Botswana, for example, is the top ranked African country in the World Bank’s Governance Indicators, putting it on a par with Ireland.8

However, full-scale social reforms, such as integrating women into leadership roles, needs to be advanced further across several markets. Cardoen admits that this is still a challenge for the region – something that he and his team are cognizant of. “We see the need for us to help spur positive change, and lead by example. FBNUK, is actively promoting women to senior roles. 38% of our executive committee are female, while there has been a 22% increase in women within management positions over the last year.”

Cardoen believes that diversity is a driver for success in business, as evidenced by McKinsey data which found companies in the top quartile for gender diversity are 15% more likely to have financial returns above their industry medians.9 He says however that “gender diversity is something that should be encouraged not just in Africa but globally”.


Managing risk

But Africa is not a market where investors can go without impediment. It is a challenging region for foreign investors to gain a foothold, with entry into many African markets requiring careful thought and implementation, and a strong service provider partner to help guide the way.

FDI flows into African markets are occasionally hampered by some vulnerabilities that must be identified and addressed by investors. Cardoen says: “CEOs and CFOs – while mindful of delivering shareholder value by increasing Africa exposure – have to be aware of the risks. While there is often a reality perception gap around risk in Africa, there are some ingrained issues that cannot be ignored such as weak infrastructure and an absence of a supportive legal framework. But these risks are not different from those in other emerging markets – the only difference is in the intensity of the risks.”

There are other factors that may discourage FDI flows. Liquidity restrictions have been imposed in countries such as Ghana or Uganda, but less so in Nigeria, Kenya or South Africa. The absence of secondary markets in these economies can also limit liquidity. There is also an absence of medium and long-term bond market activity, in addition to a lack of benchmark debt instruments.

FX risk has also deterred some investors from enlarging their Africa presence. Foreign investors have been reluctant to gain portfolio exposures to Nigeria due to concerns around currency controls and FX restrictions, implemented because of unstable macroeconomic conditions arising from the drop off in commodity prices. However, FX controls in Nigeria have been eased recently but fears of cash being trapped in certain African markets is a risk institutions are reluctant to incur.

Regulations in African markets are not always to the advantage of international investors. There is limited standardisation of rules across individual markets, while efforts to bring about integration have been slow. Many jurisdictions are saddled with weak regulatory infrastructure and slow legal processes, and this is a natural concern for international investors.
While investors can of course have an ‘Africa’ strategy, they must consider the diversity of risks in each country, and have a tailored approach to managing the challenges in those jurisdictions.


Experience and expertise

Counterparty risk is something international investors with exposure to frontier markets must always consider. Cardoen advises investors to identify counterparties in these markets which have strong product depth and capabilities, as well as risk management standards that are in line with universally accepted benchmarks. He says: “We at FBNUK take risk management seriously, that’s why our strategy takes us to African countries where we have operations and local people on the ground so that we can properly monitor the various risks. Having a deep knowledge of individual countries, sectors and market players is critical, and this helps us drive industry leading governance, risk management and controls.”

Other providers may lack strong compliance processes to deal with the fluidity of local or even global regulations. Working with a counterparty in emerging and frontier markets which prides itself on following the rules and promoting transparency is absolutely critical, particularly when ensuring compliance with supply chain risk.

A handful of financial institutions have left the continent citing compliance challenges. Such actions are short-termist, mainly because Africa is a promising growth region, and such difficulties faced on the continent are not that different to the problems endured in other new markets. “Keeping on top of compliance matters in African markets is something banks can achieve by having robust infrastructure, policies and procedures, which is something we at FBNUK are heavily focused on,” says Cardoen.


The balance

Striking the balance between risk and reward can be daunting, but it is not impossible. A strong bank with deep-rooted capabilities and market knowledge can help foreign investors navigate their way through Africa, along with its embedded complexities, and related opportunities. Cardoen concludes: “FBNUK is a subsidiary of the First Bank of Nigeria – the largest and most respected banking institution in Nigeria. We benefit from our parent’s rich heritage of operating in the region for over 125 years. As the offshore banking and international treasury centre for the Group, we work both through First Bank of Nigeria’s extensive African network, as well as FBNUK’s branches in London, Paris and Lagos. We have the experience and expertise to help our clients navigate the unique challenges of Africa. We have the longevity and the commitment to the African continent – it is our core business, and not just part of a global, opportunist expansion exercise.”



  1. United Nations. 2017. World Investment Report 2017. [ONLINE]
  2. FDI Intelligence. 2016. The Africa Investment Report 2016. [ONLINE]
  3. Dr Evita Schmieg, SWP. 2016. Africa’s Position in Global Trade. [ONLINE]
  4. FDI Intelligence. 2016. The Africa Investment Report 2016. [ONLINE]
  5. FT. 2017. Private equity falls short in spurring African development. [ONLINE]
  6. EY. 2016. EY’s Africa Attractiveness Program 2016. [ONLINE]
  7. FDI Intelligence. 2016. The Africa Investment Report 2016. [ONLINE]
  8. FDI Intelligence. 2016. The Africa Investment Report 2016. [ONLINE]
  9. Mckinsey & Company. 2015. Why diversity matters. [ONLINE]