The stories of people living in diaspora who have tried to invest back in Africa are quite heartbreaking and hilarious at the same time. I have heard countless stories of people who tried to invest back home and failed terribly. Some sent money to ‘trusted’ family members and friends who told them of land that was in a prime place, or of a business idea that seemed so lucrative, or of some project that promised great returns in short periods of time. Some sent money through family and friends to purchase assets and run projects on their behalves. Unfortunately (and well, expectedly), they suffered from what we popularly refer to in Kenya as premium tears. The land was never bought, or price was inflated, or it was in the middle of nowhere. The project never kickstarted despite photos sent back showing progress. The lucrative business somehow did not go as planned and in a few months the proxy came back with endless stories on how some unforeseen events had caused them losses. Because of these and many more experiences, many Africans living in diaspora don’t want to hear anything re investing back home.
According to a World Bank report released in 2020, it was estimated that Kenyans abroad hold up to $1.8 billion in chequing accounts earning zero interests in their host countries. A look at remittances to Africa shows that a lot of money is sent back into the African continent. In 2020, $48 billion was sent to Africa from Africans living abroad. Yet, of these, approximately 80% are sent to fund consumption (contributions to family and friends), meaning only 20% is sent for savings and investments. In Ghana, this figure is about 30%, while in Nigeria, the largest recipient of remittances in Africa, the percentage of remittances that go towards investments is about 25%. These statistics paint a picture of what it looks like for the rest of the Sub-Saharan African countries. As already discussed above, one of the main reasons why the diaspora Africans shy away from such investments is due to lack of knowledge on what safe investments there are back in Africa, and how these can be accessed.
So, are there ways in which diaspora Africans can safely invest back home? The answer is a resounding yes. And there are several opportunities to choose from, without involving family and friends. Such investments may include, but are not limited to direct investments, private equity and managed funds, treasury bonds and bills, cooperate bonds, shares, money markets and REITs just to name a few. These are some of the investments that are offered by professionals and are highly regulated by the various regulatory bodies in each country (such as central banks and the capital markets authorities). The companies that offer these investment products are licensed and regulated. All one needs to check is their performance and investment terms.
In addition, some of the companies and governments have gone ahead and developed customized investment products for those in diaspora. For example, in 2020 Kenya’s Capital Markets Authority launched a diaspora bond which was to be issued in 2020 before it was pushed forward due to the Covid-19 outbreak. The infrastructure bond will exclusively be sold to those in diaspora, and they promise very good returns. That money sitting idle in a chequing account can effectively earn you 14% in returns per year. Banks and investment banks have also come up with preferential rates of return for those in diaspora.
Why should you invest back in Africa, I hear you ask. One, because the continent is opening up to the world, and if we do not take up these opportunities then others will. For example, statistics show that only about 20% of Africans invest in the African securities markets. The rest are foreigners. This is so because the rest of the world sees the value in the continent. For the very first time, the last ten years have seen African countries being able to borrow from investors in the international capital markets. On top of my head, I know a number of funds established in Africa in the last five to ten years by foreigners, who are investing in these markets and making a lot of money. We should take up these opportunities.
Secondly, Africa needs its population in diaspora so as to achieve its development goals. According to the World Bank 2020 report, remittances to Sub-Sahara Africa in 2020 overtook foreign direct investments and aid funding to become the largest source of capital for the region. Regardless of whether these funds were used for consumption or investments, they still led to economic growth. Consumption increases the amount of money in circulation thus encouraging production. Investments on the other hand, provide funding for startups, infrastructural development and improve further consumption. Investing in Africa therefore achieves a double result: high returns for the investor and participation in the continent’s development journey.
Pevy Ouko is currently a graduate student at Carleton University in Ottawa, Canada pursuing Master of Arts in Economics. He holds a First-Class Honors Bachelor of Commerce (Finance option) degree from the University of Nairobi in Kenya and is also a certified public accountant registered in Kenya. His work and academic experiences have grown in him a passion for African economic growth and the hope that Sub Saharan Africa can achieve economic development just like any other parts of the world. He also loves reading and writing about investments and personal finance, especially as these relate to the African continent. He is the founder of Afrimanomics, a blog that writes about African development economics. Through this blog, Pevy seeks to educate Africans with little or no knowledge of economics on matters which directly affect their wellbeing.
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