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
Microsoft Corporation (NASDAQ:MSFT) –
As mentioned above, Africa is the second largest growing mobile market according to research done by Microsoft Corporation (NASDAQ:MSFT) itself. This is the reason that they are teaming up with Huawei to make a new smartphone that is specifically geared toward African consumers. The 4Afrika initiative launched in February has the company spending an additional $75 million over next three years to develop its share in what it calls the “game changer in the global economy.” The phone will feature Windows 8 as opposed to the Android or iOS systems. The new smartphone is being called the Huawei Windows 4Afrika. The phone will also come loaded with applications that will be useful in the African marketplace.
Google Inc (NASDAQ:GOOG)
Africa, with about 1 billion people, has 15% of the world’s population, but only 2% of its internet users. Google Inc (NASDAQ:GOOG) has also recently increased operations in Africa in an attempt to change this continent with the lowest internet penetration in the world. The plan will attempt to bring internet access to sub-Saharan Africa, as well as the parts of southeast Asia that aren’t already well-covered in hotspots. Furthermore, Last year Denis Gikunda, Program Manager for African Languages at Google, announced that the search engine was offering its homepage in more than 30 African languages. Undeniably, this dramatic increase of users will increase Google Inc (NASDAQ:GOOG)’s bottom line, but just exactly how and future plans are things fools should keep an eye on.
Samsung
Samsung is now represented in every African country, with massive growth plans afoot. This is in line with its plans to grow its Africa business to a $10 billion entity by 2015. The plan entails increasing its massive supply chain, and developing assembly facilities in Ethiopia. Further, Samsung has opportunity to grow their company’s home appliance division. They have started to create new products built specifically towards the African Demographic that will boost uptake of the company’s home appliances.
Foolish conclusion
Opportunities in Africa span all economic sectors. Because most African economies are in early stages of development, many attractive investments can be found in technology and services. I expect Africans’ disposable income to increase rapidly and therefore seek to invest in industries where that money will be spent. Personal communications, food and beverage, banks, health care and retail are all industries where I expect growing demand.
Just as with early investors of Asia and Latin America, I believe that investment pioneers in Africa are likely to find the journey challenging and often unpredictable, but ultimately very rewarding in the long run.
Chris Johnson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Companies Are Investing in Africa, and You Should Too originally appeared on Fool.com.
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