Meanwhile, the IMF predicts that the global economy will continue to crawl along during 2014, growing at only 4%.
The bulk of the growth in the Ivory Coast will come from the strong global demand for cocoa as the country is the biggest producer of the commodity in the world, while Mozambique will benefit from the discovery of the world’s biggest gas discovery in the past decade. The drive for energy will also benefit Nigeria, Africa’s top oil producer, which is expected to grow 7% during 2014.
Money is flowing into resource rich Africa, and it is expected that the whole region will continue to grow at 4%-6% all the way through until 2020. Indeed, many believe Africa is the new China as the whole continent starts to stabilize and receive investment to develop.
How to capitalize on this growth?
Mastercard Inc (NYSE:MA) is one of the many companies seeking to capitalize on this growth. It is well placed after its recent deal with the Nigerian government to roll-out 13 million Mastercard Inc (NYSE:MA) branded National Identity Smart Cards which have electronic payment capacity.
This is a game changing deal for the company as all Nigerians older than 16 will be issued with the multipurpose identity card, which includes Mastercard Inc (NYSE:MA)’s prepaid payment technology, allowing users to make safe and secure electronic payments throughout the country, bringing this kind of financial service to many Nigerians for the first time ever.
The final program will see a roll out of more than 100 million MasterCard cards to Nigerians, and if successful, this program could be carried out throughout the continent, which puts Mastercard Inc (NYSE:MA) in a hugely beneficial position.
This scheme is building on the company’s existing presence in the country. Mastercard Inc (NYSE:MA) is already behind an electronic payments system for SME’s within Nigeria, and recently, the company partnered with the I&M bank to create the first multi-currency prepaid card for travel in Sub-Saharan Africa.
Not just MasterCard
However, Visa Inc (NYSE:V) is also active on the continent and is targeting mainly mobile growth. Indeed, according to data from 2010, only 38% of Nigerians have access to financial services, while 58% have a cell phone contract. Visa Inc (NYSE:V) is seeking to capitalize on this trend and the company’s subsidiary, Fundamo, based out of Cape Town, South Africa, recently launched three new mobile payment services in Nigeria, Uganda, and Zimbabwe.
Moreover, Visa Inc (NYSE:V) is active in 19 different countries across the continent and the demand for mobile-based financial services is being driven by the 647 million African consumers who do not have access to a bank account. It would appear that Visa Inc (NYSE:V) is better placed for growth than Mastercard Inc (NYSE:MA) as the company’s dominance in mobile devices means that it has a larger volume of transactions going through its network. For example, when surveyed, many customers in Nigeria said that they would use mobile money to save for their family, and pay utility bills, which indicates that the company will have a regular, high volume of transactions to process and profit from.
Where there is money to be made, banks are somewhere to be found
Many banks are also active on the continent, and one of the leaders is Barclays PLC (ADR) (NYSE:BCS). In particular, Barclays PLC (ADR) (NYSE:BCS) is focused on becoming the go-to bank on the African continent with its ‘One Bank in Africa’ strategy. Indeed, Barclays PLC (ADR) (NYSE:BCS) currently has over 14 million African customers across ten countries and is working with regional banks within Africa to expand its presence.
Meanwhile, one of the biggest banks in the world by assets, Deutsche Bank AG (USA) (NYSE:DB) is looking to accelerate its African and Middle Eastern operations. The bank already has an office in Johannesburg, South Africa, but also plans to open a sales office in Ghana this year as part of its expansion policy.
The bank is focused on international payments and trade finance in West Africa, which could be a very lucrative region as trade with the rest of the world fuels economic growth on the African continent. In addition to Ghana, Deutsche Bank AG (USA) (NYSE:DB) is looking to expand into Nigeria like the majority of its peers. However, the bank is apparently taking a different approach and is looking to expand into asset management and wealth management in Nigeria, a sector that is set to benefit from the large inflow of financial firms and the growing demand for financial products in the country.
Indeed, it appears that finance is taking off in Nigeria as the country’s stock market has outperformed all of its peers on the African continent during the first part of this year. This is a result of improving confidence in the African market by international investors and growing wealth within the country, indicating that Deutsche Bank AG (USA) (NYSE:DB) could be entering a lucrative market.
A cheap bank
While, Visa, MasterCard, Barclays, and Deutsche are all expanding in Africa, the best bet and currently trading at below book value is Citigroup Inc (NYSE:C). Citigroup Inc (NYSE:C) has adopted a top-down approach in Africa, helping governments to sell bonds and offer banking services to the biggest companies in each country. A top-down approach has allowed the company to build a large network of clients and influence in Africa.
That said in the company’s most recent earnings report, revenue from the Citigroup Inc (NYSE:C) operations in Europe, the Middle East and Africa fell 3%. However, the company still has a broad African presence, operating in 15 countries with 1,200 employees – the company has been in Africa for 50 years. With Africa gaining traction as the leading emerging market economy, Citi should be well placed to take advantage of both growing international and domestic monetary transactions, despite its short term weakness.
Conclusion
Overall, Mastercard Inc (NYSE:MA)’s new card scheme will corner the market in Nigeria, opening up the potential for rapid growth in the country. However, its peer Visa Inc (NYSE:V) has exposure to the whole African continent and has cornered the mobile money market, which makes it my pick for the best play on the rapidly developing financial industry in Africa.
The article Profit From Africa’s Growth With These 3 Early Movers originally appeared on Fool.com and is written by Rupert Hargreaves.
Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool recommends MasterCard and Visa. The Motley Fool owns shares of Citigroup Inc and MasterCard. Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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