Africa could prove to be one of the next great ground-floor international investment opportunities if recent progress can be sustained. The continent’s market-based ideals are solidifying, and it is simply a matter of time before its capital markets and economies become more developed, liquid and integrated with the global financial system. The adage “the early bird gets the worm” has always been an applicable saying in the field of investing, and in recent years, companies have begun to infiltrate the continent. If investors want to capitalize on this emerging market, they should follow suit.
Today, the continent features rapid growth, rich natural resources and a large, young and increasingly educated workforce. In May 2000, The Economist Magazine famously dubbed Africa “the hopeless continent,” but the cover of the same magazine on December 3, 2011 was entitled “Africa Rising,” an affirmative indication of where the continent is heading.
Investment thesis
Africa is the most complex continent on earth and defies simple descriptions. It has one billion of the world’s seven billion people and 20% of the world’s land mass. Behind Asia, it is both the second largest and second most populous continent. It has 54 countries with hundreds of ethnic groups speaking more than one thousand languages. One (mostly) common theme throughout the continent, however, is that the quality of life is improving.
Here are four reasons why companies are investing in Africa, and you should too.
1.
Africa is growing
As African economic growth kicked into high gear a decade ago, the continent’s equity markets responded. Africa’s largest stock market, South Africa’s, rose nearly 200% from 2001 to 2010. The expectation that Africa will continue to generate attractive returns for investors is thus not predicated on big changes occurring, I merely expect Africa to remain on its present course. Here’s a quick fact to consider: Nine of the top fifteen fastest growing economies in the world are in sub-Saharan Africa.
2. Immense natural wealth
Africa has what the world needs. According to the United Nations, only about 10% of Africa’s arable land is currently being cultivated and the continent holds more than 60% of the world’s uncultivated arable land. Over the next few decades, Africa will likely transition from a net food importer to a net food exporter.
3. Africa has favorable demographics (for investors)
Africa’s one billion people are mostly young. In sub-Saharan Africa, up to 40% of the population is thought to be under the age of eighteen. The median age in Africa is about 20 versus 30 in Asia and 40 in Europe. Africa’s large, inexpensive, and increasingly educated labor force is poised to make a strong contribution to the global economy.
4. Technology is accelerating change
Communications and computing technology is acting as an accelerant in Africa; the growth of mobile phones provides an instructive example. Africa is the fastest-growing mobile phone market in the world, having increased its subscribership 20% or more in each of the last five years. In 2001, Nigeria, a country of 160 million, had fewer than 500,000 phone lines in the whole country. Now, eleven years later, it has more than 80 million mobile phone subscribers.
Companies capitalizing on the growth
