African countries are investing a greater portion of the available limited public resources into reforms, infrastructure and security. They are seeking to improve business environments, including the ease of doing business to attract Foreign Direct Investment to their respective countries. However, the diverse business entities and sectors in Africa are yet to attract the needed Foreign Direct Investment despite the potential that exists in the African countries. Simply put, Foreign Direct Investment (FDI) is when an enterprise or individual abroad has an investment interest, in a business entity mainly for investment gains in Africa. The direct investor could be any of the following in real terms: an individual, a group of related individuals, an incorporated or unincorporated enterprise, a public or private enterprise, a group of related enterprises, or any of the mentioned combinations. Foreign Direct Investment (FDI) is an investment from a party abroad into a business or enterprise in Africa to establish a lasting interest.
A favourable business environment, with ease of doing business and adequate security including infrastructure, is believed to be important for both domestic and foreign investment attraction. However, a greater number of businesses in Africa strive to attract Foreign Direct Investment (FDI) but without considering the huge impact of the business environment. This is largely because FDI is acknowledged as a beneficial instrument of economic and business development. In fact historically, the contribution of FDIs to businesses and economies in Africa is significant but it keeps declining year on year post-COVID-19 pandemic.
Therefore, for economies and businesses in Africa to attract international investors and FDI it will require effort, strategic plans and a lot of confidence. This piece looks at the inward flow of FDI which refers to investments received by local businesses or entities in Africa from foreign entities or individuals. There is a large body of knowledge on the benefits local businesses can derive from FDIs, some of which are profitability stimulation, development of innovations and human capital job creation boosts, enhanced competitiveness, access to better management expertise, improved employee skills, transfer of technology, knowledge transfer, and above all it will contribute to business expansion and profitability. Additionally, foreign direct investments equally receive advantages and benefits as well, such as market diversification, boosting competitiveness, tax incentives, lower labor costs, taking advantage of large market size, preferential tariffs, and high demand for goods and services due to the population of Nigeria.
Furthermore, attracting international investors to any local business entities in Africa, be it in Mauritius, Ethiopia, Kenya, Nigeria, Morocco or Rwanda can be daunting but with a strategic plan and good effort, it will reap the desired gains. Attracting foreign investment can be simple if the African entity does it the right. However, the most important parts of attracting international investors are a strong business model, good business structure and culture, impressive infrastructure quality, huge market size, return on investment, and innovation. These are some of the factors that usually attract foreign investment to a local business.
Entities in Africa should consider the following guidelines and advice to attract FDIs into their prospective businesses: Compile significant data that shows the business’s success and trend in your current financials. Projections on how you plan to continue that success with adequate supportive data should be gathered. Documentation of how your business will work under the proposed new arrangement and the commercial viability should be prepared. As an experienced SME operator consider having a list of potential pitfalls and how you plan to navigate them for the investor to understand the inherent business risk and their mitigants.
As an entity, it is important to showcase what an investor could gain investing in your entity, which is the return on investment. Having detailed information about how investing in your entity is beneficial to the investors should similarly be gathered, if possible, prepare an information memorandum. FDIs will expect you to know everything about your country, ease of doing business, business entity and how it will function with additional shareholders or equities, so work on this.
The big question is can the investor easily take profits out of the country and repatriate, or are there local restrictions? All government regulations, policies, and approval needed should be compiled and make sure you have all the processes detailed and you can provide an accurate timeline for getting documentation sorted. Above all, adopt aggressive investment promotion on social media and use international networking events and agents to search for investors and build up interest. Make sure all needed information on your business is full and concise for review by your prospective investors.
With these aforementioned tips, your business or entity can find an effective foreign investor to help your business grow. However, if you have specific concerns about enhancing or on how to build an effective strategy to attract FDIs to your business, you may need to urgently reach out to a professional for essential advice. Good luck!
Image Credit: James Wiseman on Unsplash
