- The (Continued) Global Rise of African Creative Content — In 2019, Netflix made two relatively quiet moves: they acquired the rights to the British-Nigerian sitcom, Meet the Adebanjos, and launched their first original film produced in Nigeria, Lionheart. While you may not have seen either, Netflix’s actions were not random: as we all have come to know, they tend to be “on to something.” What started seemingly as a murmur in 2019 will likely become a full-court press in 2021: African creative content across design, fashion, television, movies and music will become even more ubiquitous. While it already touches many of us, you might be forgiven for not knowing certain patterns, styles of music, or story narratives are very much African in origin — 2021 will be the year it will be inescapable. Companies able to take advantage of these trends will be particularly well set up for the future.
- Appearances of “Debt Trap Diplomacy” May Cause Tensions to Flare — Holding 62% of the aggregate bilateral debt in Africa, China is a key financier of African governments, particularly to infrastructure projects, many of which fall under the Belt and Road Initiative. However, many of these arrangements now appear to be at risk (according to the IMF, 40% of African countries are at risk of default). Late in 2020, Zambia was the first to falter, formally defaulting on a tranche of debt; in April, it will head to the negotiation table with the Chinese Development Bank to discuss restructuring. Similarly, Kenya has just agreed to an extension on a portion of its Chinese-held debt until at least June, but a further extension remains uncertain. These uncertainties come with added tension: after defaulting on its debt obligations in 2020, a Sri Lankan port was handed over to a Chinese firm as a recovery mechanism. As a result, all eyes have turned toward other developing markets to see how impending debt restructurings, many of which brought on by impacts of COVID, will play out.
- Two Steps Forward, One Step Back for African Youth Activism — During the first full week of October 2020, a group of Nigerian youth began protesting against the Special Anti-Robbery Squad (“SARS”) unit of the Nigerian police — a quasi-military unit mired in controversy and known to be responsible for extra judicial acts ranging from torture to executions. Two weeks later, after successfully convincing the government to suspend the unit, a protest ended in violence, including 25 protesters injured by government forces, and at least one killed (some sources report 12 or more). Across the continent, to the east, Ugandan opposition candidate Bobi Wine was repeatedly jailed in the run up to the January 14th presidential election (see following section), after leading a number of rallies, mostly of Ugandan youth, to promote a different option to the long-standing incumbent Yoweri Museveni. While recollections of the Arab Spring come to mind — especially in the similar use of then-emerging (now pervasive) social networks to coordinate, share updates, and assemble — significant changes to entrenched government power structures as a result of youth demonstrations seem unlikely in 2021, though we are certain to see additional activity and will be watching to see what changes do come about.
- Strong Distribution Networks will be King — Agent distribution models have been increasing in popularity in Africa, especially as companies recognize the collective purchasing power of rural communities and the importance of reaching hard to reach, last-mile consumers. Currently these agent networks are largely used for access to financial services, provision of fast-moving consumer goods, and solar-based products (see Safaricom, Copia Global, and M-KOPA for examples). In 2021, distribution of health services will become critical as the COVID vaccine will need to reach entire populations to be effective in reducing the spread in Africa. We believe that companies with large, loyal, far-reaching distribution networks are best positioned to service this gap and will raise significant capital from both private and public investors as a result.
- The Fortune at the Bottom of the Pyramid — While much of the story about the rising consumer class in Africa has focused on the opportunity to target the growing middle-upper-class segment of the market, the larger opportunity continues to lie with serving the mass-market consumer who needs both essential and discretionary products and services. Companies that can leverage the agent distribution models mentioned above (and other partnerships) to target underserved consumers in urban and rural areas with more accessible and affordable products and services will be met by eager consumers who have been neglected or provided with sub-par offerings.
- Continued Strength of COVID-resilient Sectors — Information technology, healthcare and financial services will continue to see growth through 2021 as these industries become an increasingly essential component of economic growth in Africa. Governments across the continent have passed policies that have spurred growth within these sectors and we continue to see new, promising innovations enter the market, both within and outside the context of complications raised by COVID.
- Red Tape Will Inhibit the Full Implementation of the African Continental Free Trade Area (AfCFTA) Agreement — Although AfCFTA formally came into effect on January 1, 2021, creating a single tariff-free market intended to harmonize intracontinental trade, a number of factors will hamper the implementation of the agreement. Poor infrastructure and inefficient and inconsistent customs procedures will take time to resolve. However, the bigger obstacle will be how long it takes for governments to agree on the timeline for removing tariffs on 90% of goods. While most countries have signed the agreement (Eritrea is the lone holdout), only 35 have ratified it, and there is no clear guidance on when the remaining steps to fully implement the agreement will be completed.
- The Search for the Golden Goose Will Lead to an Increase in M&A Activity — A range of factors will contribute towards an increase in M&A deal volume across the continent: African-based strategic acquirers will seek to purchase businesses to expand to other regions on the continent for growth, to compete with regional and multinational corporations, and in anticipation of the benefits and opportunities presented by AfCFTA; growth equity and larger-sized private equity firms will aim to deploy capital they have raised for new investments and to build platform companies; and recognition of the continent’s growth potential across a range of sectors, including fintech and energy, will spur heightened engagement by strategic multinationals.
We would love to hear where others agree and disagree with us. Leave your questions and comments below!
