A promising start of the year for UK-Africa relations

This week, London hosted its first ever UK-Africa Summit. At cursory glance, it may seem like any other high level event but, just over ten days before Brexit, it marks the UK’s firm intention to position itself as the partner of choice for Africa and to strengthen its diplomatic, trade and investment relations with the region.

“Africa is the future and the UK has a huge and active role to play in that future”, told Prime Minister Boris Johnson to the delegates.

With 54 countries making up a population of over 1.2 billion, and UN estimates that the region of Africa will account for more than half of the global population growth between now 2050, the continent has regularly been heralded as an intriguing opportunity for investment in natural resources, telecoms & IT, agriculture, manufacturing industries as well as in infrastructure development and entrepreneurship. African consumers and businesses’ annual spending is expected to reach over $6 trillion by 2030, up from $4 trillion in 2015. These trends are spurring growing markets in sectors that address the region’s unmet needs, such as healthcare, education and fintech. As Jack Ma recently observed ‘Africa’s future belongs to its entrepreneurs, those tireless dreamers for whom every problem is an opportunity”.

Yet until now the relationship between the UK and Africa has been largely dominated by development aid where the UK leads the way: Britain is the only member of the G7 group of countries to meet the 0.7% goal. Former Prime Minister Theresa May’s 2018 visit to Kenya was the first in 30 years and for some time, Britain’s diplomatic presence in Africa had been declining. In contrast, China’s top leadership visited 79 countries in Africa in the last decade.

The UK Government’s intention to ‘turbo-charge’ its relationship with a region that is now home to 8 of the 15 fastest growing economies in the world is welcome news to investors.

Of course, nothing will change overnight. The process of Brexit means that trade relations between the UK and Africa will stay the same for 2020, when the UK ceases to be a member of the EU Custom Union and Single Market, and will continue to be conducted under the EU existing deals with the continent. After that, trade relations with African countries will come under ‘continuity deals’ which means essentially adopting the same trade conditions that are currently in place between a number of African countries and the EU. The real opportunities for African economies will emerge when the continuity deals run out.

No matter what, we expect that the launch of a ‘new era of economic diplomacy’, the CDC’s extra £2bn in funding for African companies, and the extra £620m that will support infrastructure projects including financing healthcare centres in Ghana and Zambia, a business park in Uganda and road upgrades in Gabon will turn many investors’ heads.

Goodwill can only get investment so far and UK and African Governments will need to work closely together over the coming months and years to break longstanding barriers to trade and investment:

  • Regulation and the business environment: What is often letting Africa down is foreign investors’ lack of confidence in the business environment and national regulations. Even if the World Bank’s annual Doing Business report has shown that significant progress has been made in countries like Rwanda and Mauritius to improve the climate for business, the picture is by no means uniform across the continent. An investor entering any foreign market will need to understand the governance and compliance requirements for their sector and business. Not understanding these from the outset may end up in fines, delays, litigation, arbitration, risk to reputation, investment and access to capital. Knowing how to navigate the landscape of rules and the rule makers is vital and dialogue between governments, intermediaries and the investor community could go some way to develop best practice, influence action and create incentives. African governments’ efforts to reform many of its regulations governing FDI (including in data and block chain) will help give confidence to investors.
  • Infrastructure & innovation: Africa’s annual investment in infrastructure has doubled to around $80 billion a year since the beginning of this century but inadequate infrastructure is still one of the key impediments to investment in Africa. It also represents a significant opportunity for investors. For example, nearly 600 million Africans lack access to the electricity grid. And this is not just about “heavy” infrastructure, it is also about e-infrastructure. Africa needs world class internet services to support the development of a strong digital economy: data analysis, logistics, payments. And it needs governments with the skills needed for the emergence of a digital economy, able to incentivise foreign and home-grown business, funds, start-up incubators to support entrepreneurs in growing and scaling up.
  • Visa and immigration: For many foreign investors, policy makers and scholars, visiting the UK can be a challenging experience: time consuming and a first, often negative, encounter with Britain. Prime Minister Boris Johnson signalled the upcoming reform of foreign visas.

As the UK sets its own path independently from the EU and looks to forge special trade and investment partnerships with African countries, it will need to ensure it is a truly two way relationship, a vibrant conversation with mutual benefit on both sides.

Mishcon de Reya has been working across Africa and with investors into Africa for many years. Our clients range from individual investors, families, corporates and governments.