FI in Africa: The Barriers

If opportunity doesn’t knock, build a door - Milton Berle

Malik Djinadou

Picture waking up on a Saturday morning, the constant hum of the generator jolting you back to reality. Your charming urban villa is bustling with activity. The aroma of breakfast wafts in, made from local ingredients and love, drawing you to the kitchen where your family eagerly awaits. The day is filled with promise, but as evening approaches, you can’t help but reflect on the trade-offs of living here.

You’ve made it. Your native country, once a distant dream, is now home. But as the generator buzzes in the background, a reminder of the unreliable power supply, you ponder the sacrifices and challenges. The day’s memories flood your mind - the chauffeur-driven journey on bumpy roads in the sturdy old car (despite owning a sleek BMW), the political unrest affecting your chef’s commute, and your ailing aunt who needs better healthcare than available locally.

As you settle for dinner with your family, it’s evident that life here is a mix of comfort and compromises. The choices that brought you here, to a place of cultural richness and familiar faces, are intertwined with daily challenges that test your resolve.

This week, we will explore some of the challenges of achieving Financial Independence (FI) in Africa, where the allure of home is sometimes overshadowed by hurdles that those living elsewhere may not encounter. Please note that this list is not exhaustive and will mainly focus on socioeconomic factors rather than cultural or familial influences.

(in)Security

Feeling secure is a fundamental human right that everyone deserves. Unfortunately, many countries in Africa and non-western nations are often portrayed as dangerous and violent. Nigeria is associated with Boko Haram, Mexico with cartels, and the Philippines with drug wars. However, it's essential to take a step back and consider these countries beyond their problems. Like any other nation, they are diverse and rich in culture. Nigeria, for example, has over 250 ethnic groups, the 2^nd biggest film industry in the world, and a vibrant music scene. Mexico boasts a deep history and world-renowned cuisine. The Philippines is an archipelago with over 7,000 unique islands. While safety concerns exist in some regions, it's important to remember that this is true for any part of the world. It's important to stay informed and understand that safety concerns may vary within a country. However, financial independence is something that you prioritize, which is why you're here reading this. By taking control of your finances, you can provide yourself with opportunities to avoid many security issues and secure your future.

 Healthcare

“Health is Wealth.” The cost of healthcare can significantly impact one's financial independence and ability to accumulate wealth. While many Western countries offer their citizens free, accessible healthcare (excluding those south of the Canadian border), the situation is quite different in some African countries. In this region, healthcare remains amongst the worst in the world, with individuals having to finance 50 percent of their health expenses out-of-pocket. The area lacks the infrastructure to deliver good quality care and faces a severe shortage of trained medical personnel. The brain drain phenomenon, where healthcare professionals leave their home country for better opportunities abroad, significantly exacerbates this problem. As Africa’s population ages, the demand for suitable health care will only increase further, particularly for the growing elder population. This has also been an issue among developed countries as well, which has resulted in medical tourism. However, Africa also hosts some medical tourist destinations, notably South Africa and Tunisia. As individuals, we can make significant improvements in preventive healthcare. Vaccinations and health education are crucial preventative measures that can enhance the population's overall health. A healthier population not only reduces the pressures on the healthcare system but also helps individuals avoid the financial burden of serious illness.

Infrastructure

Infrastructure issues can hinder business operations and FI. Limited access to financial services such as banking, loans, and investment opportunities can impede FI. Without these services, it isn't easy to save, invest, and grow wealth safely. One of the first and foremost challenges is the unreliable electricity supply. Dependence on loud generators can incur high energy costs. This substantially reduces overall savings and investment potential. Interestingly, the Democratic Republic of Congo (DRC) has been identified as having enormous hydroelectric power potential, which, if harnessed, could provide electricity to the entire continent. Achieving financial independence in an environment with infrastructure challenges requires creativity, adaptability, and sometimes additional resources.

"In the midst of chaos, there is also opportunity." a quote from Sun Tzu's "Art of War" aptly summarizes the potential in overcoming these infrastructure challenges. Poor infrastructure allows us to develop great infrastructure: i.e. renewable energy (No more generators?). By identifying gaps and inefficiencies in the existing infrastructure, entrepreneurs and investors can develop solutions that benefit themselves and serve the larger community. For example, in response to long waits at banks, fintech start-ups across Africa are developing online banking systems that make financial transactions more efficient for both the banks and their customers.

Photo by Moritz Kindler on Unsplash

Economic (in)stability

Achieving Financial Independence in Africa can be challenging due to economic instability. Fluctuations in currency value, inflation, interest rates, and political uncertainties significantly impact personal and business finances. Hyperinflation is a prime example of economic instability, where prices increase rapidly as the currency loses value, eroding the purchasing power of savings and income. Zimbabwe experienced hyperinflation in the late 2000s as the country’s economy was in shambles and the government was printing money to pay its bills. This led to a rapid devaluation of the currency and skyrocketing prices for goods and services. At its peak, inflation reached an estimated 79.6 billion percent. In such an environment, saving money in the local currency was virtually pointless, as its value evaporated almost daily. This makes it difficult for individuals to plan for the future as the value of their savings diminishes. Additionally, frequent and significant currency fluctuations can affect the value of savings and investments, especially if they are held in foreign currencies. This can also impact the cost of imported goods, directly affecting daily living expenses. In unstable economies, individuals may face investing challenges like unreliable banking systems, unpredictable regulatory environments, and difficulties preserving the value of savings and investments. Moreover, access to investment products may be limited, and those available may have high fees or questionable quality. To mitigate these risks, diversifying investments and considering holding a portion of savings in stable foreign currencies or assets can be a prudent strategy. Developing multiple income streams and building a robust emergency fund can also serve as a safety net during economic turbulence.

Political (in)stability

The impact of political instability on financial development cannot be ignored, as it is a primary determinant contributing to the differences in economic growth worldwide. When political uncertainties arise, such as hostile government takeovers, businesses and investors can become uncertain. This, in turn, can lead to decreased investments, slower economic growth, and increased unemployment rates. For instance, after the Arab Spring, Egypt experienced political instability that negatively affected foreign investments and economic development. Some African countries are plagued by political instability and corruption, which can lead to economic mismanagement, unpredictable regulatory environments, and currency controls. This makes it challenging for entrepreneurs to establish and expand their businesses and for individuals to make long-term financial plans. Despite these obstacles, achieving financial independence is still possible, although it may require additional caution and strategies. Diversifying investments across various geographies and asset classes can help mitigate risks, and engaging in industries resilient to political upheaval can also be beneficial.

The Path Forward

From inadequate infrastructure and political instability to healthcare issues and economic obstacles, the path to FI in Africa is not without its difficulties. Despite these challenges, the richness of culture, sense of community, and growth potential provide a backdrop for striving for financial freedom. It's crucial to make informed decisions, stay adaptable, and remain committed to your goals while navigating these challenges.

In the following article, we’ll launch the first post in the “Cost of Living Comparison Series,” where we'll provide a detailed analysis of the daily financial realities in various African countries and compare them to other regions worldwide. From housing and utilities to healthcare and leisure, we'll look at the differences in costs and what it means for your financial freedom.

As you continue your journey toward Financial Independence on this diverse and vibrant continent, stay tuned for insights that can help you bridge the gap between aspirations and practicalities. Your engagement, thoughts, and wisdom are welcomed as we explore these topics together. Remember that achieving FI in Africa is not an unattainable dream or ideal. Millions have accomplished it and are living their best lives despite the challenges. If they can do it, so can you.