December 2, 2023

How Private Sector Investment is Boosting the African Economy

Lagos, 19th July 2021: The funding vacuum in Africa’s project infrastructure sector and economic restrictions necessitated by the global COVID-19 pandemic have hugely impacted the continent’s economy.

Interestingly, Africa’s blossoming private sector is proving its growth potential. While Chinese lending to the public sector in Africa reduced by about 75% percent from $28bn in 2016 to $7bn in 2019, the G7 Development Finance Institutions (DFIs) and multilateral partners recently pledged to invest over $80bn in the private sector in Africa over the next 5 years. 

Private sector investments can benefit societies and translate into more jobs and higher income. For Africa, the sector is a new reality especially the Small and Medium Enterprises (SMEs) which are the main drivers of job creation. Local manufacturing is a key contributor to Africa’s economy and is currently being championed by SMEs. Data from the Nigerian Bureau of Statistics (NBS) reveals that SMEs contribute around 49% of the national GDP. In addition, they account for approx. 96% of the total number of businesses in the country and employ 84% of the local workforce in the country. 

As the private sector in Africa continues to grow, there exists a need for the government’s support if the sector must reach its full potential. This was the basis for discussion during Hogan Lovells West and East African Business Leaders Series. The global law firm is hosting the Business Leaders Series to advance resilient sustainable-led growth in Africa. The series explores key sectors and industries projected to spearhead Africa’s economic recovery and is led by core members of Hogan Lovells Africa practice, featuring private sector experts and investors across the various countries. 

In recent forums, it was agreed that the absence of a sound eco-system can impede private firms even when local or international financing is readily available. Thus, the private sector needs government support with policy. “There has never been the flourishing of the private sector in a vacuum”, Sangu Delle, the Chief Executive Officer of Africa Health Holdings said while sharing that the government must create an enabling environment for the private sector in terms of policies and regulatory practices. With this, a clearer path for private sector investment will be advanced, for example by favourable initiatives like the African Continental Free Trade Area (AfCFTA) agreement. Joseph Alain Saraka, the Chief Strategy Officer at ARISE, said initiatives like the AfCFTA are “very important and are prerequisites to ensure that the proper framework and environment is in place”. The AfCFTA resolution is one of the ways to ensure private sector and government collaboration while also encouraging Foreign Direct Investments (FDI). If well managed, the policies could strengthen the link between domestic and foreign investors. 

Andrew Skipper, Head of Africa practice at Hogan Lovells added ‘‘The Business Leaders Series continues to show the strengths and areas of focus that African economies need to recuperate, and we are very proud to have initiated these conversations. With Africa’s burgeoning population, there are more opportunities for SMEs to thrive and for citizens to earn while GDP also increases.  The expectations are unique for each region and we are eager to see the results.’’

The Business Leaders Series continues with the Northern and Southern Africa events on July 15, and November 11, 2021, respectively. The former will invite leading investors for discussion on the future, while discussing the booming manufacturing ecosystem in the region. The latter will welcome private sector leaders operating in tourism, hospitality and FMCG to draw a plan for economic recovery as well as analyse the services sector in the region. The series emphasises Hogan Lovells’ contribution to Africa, its people and economy. The global law firm has operated for over 40 years in Africa and partners with law firms in 50 African countries. Hogan Lovells remains committed to understanding, operating in, investing in, and respecting the continent. 

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