With political uncertainties and domestic issues undermining growth in several of Africa's larger economies over the last 12 months, would-be Asian investors are looking at options in a number of the continent's less prominent nations.

With the storm clouds clearing, could agriculture prove Africa's game-changer?

Last year proved to be a time of change and volatility in many of Africa's business and financial sectors, leaving several countries looking notably vulnerable. Against such a backdrop, then, where should would-be investors look for opportunities in this most contradictory of continents over the next 12 months?

One of the clear themes that dominated coverage of Africa in 2017 was the evident disconnect between politics and business. In other words, the polices that many governments committed to in the political and governance spheres did not necessarily make a material difference to the commercial life of their countries.

One of the many to acknowledge this particular problem is Ronak Gopaldas, an analyst for South Africa's Rand Merchant Bank and the co-author of the influential Where to Invest in Africa annual report. Speaking at the Thomson Reuters annual Africa summit at the end of 2017, he said: "Economics doesn't necessarily follow politics in African markets. There have been countries where their economies have rallied even when political events have been negative. This disconnect is likely to continue in 2018."

One example cited by Gopaldas was Kenya, where 24 people died last year in the violent protests that followed its disputed election result. Despite this, the country's currency strengthened once the results of the vote were announced.

Although other evidence of such a disconnect is easy to find, it is also more than apparent that an uncertain political climate can easily destabilise the local economy, an issue that is often a concern to investors. In 2017, a number of African countries clearly suffered in economic terms as a direct consequence of political manoeuvring.

In Nigeria, for instance, the prolonged absence of its President due to apparent illness caused widespread uncertainty. It was a similar story in Angola, where its President stood down after 38 years in power, with the incoming regime promptly initiating a purge of the country's commercial and political sectors. In South Africa, meanwhile, its increasingly unpopular President clung onto power until earlier this month, before resigning amid numerous accusations of corruption and nepotism. Tellingly, South Africa and Nigeria – Africa's two largest economies – were among the worst performers in terms of 2017 GDP growth.

While the downside of Africa's economic development attracted global headlines last year, less coverage was given to many of the continent's success stories. Over in East Africa, Kenya, Tanzania, Rwanda and Ethiopia all attracted substantial overseas investment, as did two of their West Africa counterparts – Côte d'Ivoire and Senegal. In terms of overall investment attractiveness, the top 10 African countries are listed in the table below.

In terms of suitable areas for investment, many African countries are keen to secure backers for their infrastructure development programmes. At the same time, there are considerable opportunities emerging in the rare metals extraction sector.

With regard to so-called 'soft infrastructure', education and healthcare top Africa's priority list. Not only are such sectors attractive investment options, but they are also seen as vital prerequisites if Africa is ever to deliver on its true economic potential.

Safari appeal: Kenya's top tourism lure.

South Sudan: Huge potential, little investment.

Another sector seen as having as yet untapped potential is agriculture. With Africa home to 60% of the world's unused arable land, properly managed and funded, its exploitation could prove to be a game-changer for the continent, while also offering considerable returns for overseas investors.

In terms of specific countries and sectors that investors should be considering, Robert Besseling, the Executive Director of Exx Africa, a Johannesburg-based risk consultancy, has conducted an analysis of Africa's most promising prospects for the next 12 months and beyond. Topping his list are Guinea and Zambia, two countries set to boom on the back of their mining industries.

Although both countries are still poorly served on the infrastructure front, they are rich in several of the rare metals essential for the future growth of many of the high-tech sectors, including manganese, niobium and cobalt. In order to deliver on the potential of their mining sectors, both countries will need to upgrade their infrastructure, including transport and hotel facilities, two areas ripe for overseas investment.

Other experts tip Kenya, Nigeria and Zambia as the optimum investment destinations. Explaining their appeal, Gopaldas said: "As well as being regional hubs, all three countries offer mineral commodities and scalability."

In Kenya's case, its fast-growing digital sector has already attracted interest from international investors. So too has its tourism and hospitality industry, a sector that has been boosted by a huge influx of Chinese visitors, many of them lured by its game reserves.

It is not just Africa's most economically successful countries that investors should be considering, with Besseling keen to make the case for a number of the continent's less-prominent nations, saying: "These are countries we forget about, any one of which could turn out to offer the next big opportunity. Many of them are former conflict zones, such as South Sudan or Burundi. Often there is very little existing investment, but a huge need for airports, roads, hotels…"

While Besseling and Gopaldas may disagree over investment priorities, they are pretty much unanimous when it comes to highlighting the most likely source of funding – Asia. Championing the role of mainland investors in particular, Gopaldas said: "We will continue to see a lot of interest in Africa coming from China, with the country already committed to a series of infrastructure developments across the continent as part of the Belt and Road Initiative. Broadly, the Chinese model of investment is likely to continue, with infrastructure funding collateralised against resources."

China: Trading infrastructure investment for Africa's rare mineral wealth.

Besseling, however, sees Asian interest in Africa as extending well beyond China, saying: "India is going to play a huge role in Africa's future development, as are Japan and South Korea. Even in Thailand and Vietnam, banks, corporates and state-owned entities are looking at opportunities in Africa."

Mark Ronan, Special Correspondent, Cape Town

In a bid to pursue long-term business development, many technology-intensive and capital-intensive enterprises on the Chinese mainland have, in recent years, been devoting great efforts to formulating their international business plans as well as further exploring market opportunities arising from the Belt and Road. According to Keda Clean Energy Co Ltd of Guangdong, outbound investment in carrying out production offshore should not just take into account labour and direct production costs but also the overall costs, including transportation, logistics and tariffs. Also, investment strategy should be mapped out according to market demand in order to seek maximum benefit for the company’s business.

Keep an Eye on Belt and Road Market Potential

Keda Clean Energy, listed on the Shanghai Stock Exchange, is mainly engaged in building material machineries (building ceramic machineries, wall material machineries, stone material machineries, etc), clean energy for environmental protection (clean coal gas technology and equipment, gas purification technology and equipment), and clean energy materials (dynamic lithium-ion battery negative electrode materials). The company also provides project contracting arrangement, financing and leasing services. It has 27 subsidiaries in Guangdong, Anhui, Jiangsu, Henan and Liaoning, as well as a number of well-known brands in the trade such as Keda, Henglitai, Kehang, Xinmingfeng, Kdneu, Ai’er and Zhuodahao. Today, the company’s products are sold to more than 40 countries and regions.

Where building material machineries are concerned, Keda Clean Energy actively makes use of Chinese-made equipment to expand its overseas markets and has already established itself as a leader in the Asian market.

The company’s director Jason Zhong told HKTDC Research: “The building material machineries produced by Keda Clean Energy are technology- and capital-intensive, with both their quality and technology reaching international levels. This, coupled with the full support of the mainland in supplying metals in the form of raw materials, electronic/electrical parts and components, as well as abundant top-notch design and engineering personnel, is conducive to the production of building material machineries with advanced technology and high price-performance ratio.

“Although labour and production costs in the mainland have been climbing in recent years, Keda Clean Energy still manages to improve its mainland production business, excel in technology and quality, and further develop the market at home and abroad.”

China’s building materials market is coming of age after years of growth.

Zhong added that after 30 years of growth, the mainland building materials market is coming of age and the demand of downstream manufacturers for building material production equipment is becoming stable. To seek long-term business development, Keda Clean Energy is gradually expanding its overseas market. It also attaches importance to the development potential of countries along the Belt and Road. Many countries along the route are eagerly trying to import the necessary equipment for the production of building materials locally to support the burgeoning infrastructure construction and building activities in their countries.

Deploying Overseas Investment Based on Cost and Profit

In addition to exporting building material machineries from the Chinese mainland, Keda Clean Energy has also started to invest in production activities offshore. Such investment projects mainly concentrate in downstream business related to building material equipment, including investing in the production of ceramic building material products in African countries. The ceramic tiles production line the company set up in Kenya began operation at the end of 2016, while its factory in Ghana is scheduled for operation in mid-2017. Infrastructure construction work for its building materials project in Tanzania is also in progress.

Keda Clean Energy keeps an eye on ceramic building materials market along the Belt and Road routes.

Although the building materials made in China have the advantage of low cost, manufacturers in the trade often find it difficult to explore distant markets overseas due to the relatively high import tariffs imposed by some countries and the high transportation cost involved. As construction activities in certain developing countries, such as those in Africa, continue to surge, their demand for building materials is strong. Yet there are hardly any large-scale local investors who are willing to set up building material production lines there supplying the local market.

Zhong said: “Against this background, Keda Clean Energy co-operates with some African distributors whereby China-made equipment is exported to the countries concerned to set up building material production lines there, taking advantage of the raw materials available locally to produce ceramic tile products to supply to the African market.

“Actually, taking into account the labour efficiency and other production costs in Africa, the cost of producing ceramic tiles there is not lower than that in the mainland. But the great savings on import tariffs and transportation cost allow Keda Clean Energy to effectively explore the end market for building materials in Africa. Moreover, the keen demand of the African building materials market means that it can accept higher prices, which in turn brings about greater profit. At the same time, it can also drive the company’s equipment sales to Africa.”

Where building material machineries are concerned, Keda Clean Energy has realised localisation of building ceramic machineries and is moving towards its objective of becoming the world’s building material equipment industry leader. The company has two “state-accredited enterprise technology centres”, one “national engineering technology centre”, two “post-doctoral scientific research workstations”, and three “academician workstations” in the mainland. These innovative R&D platforms complement its mainland production bases in providing advanced equipment and relevant technical support services to its building materials clients. At present, the company is one of the leading enterprises in building material machineries in China and has been awarded honours such as China’s top 500 machinery enterprises, national-level high-tech enterprise, national intellectual property demonstration enterprise, and Guangdong’s top 20 innovative enterprises.

(Remark: The above is among the case studies of a research project jointly undertaken by HKTDC Research and the Department of Commerce of Guangdong Province: Shift of Global Supply Chain and Guangdong-Hong Kong Industrial Development. Please refer to the research report of the aforementioned project for more details.)