The Africa Story
Africa is the most attractive growth region in the world. For a long time the continent
remained the last blank area on the investment landscape, but thatwas the past. Investors
and companies from all over the world are beginning to explore Africa. There are many
reasons why Africa is interesting to them.
Market size: Africa is the second largest continent in the world, with a
total population of more than 1 billion people.
Market growth: 7 out of 10 of the fastest growing countries, until 2015,
will be from Africa. From our view their dynamic economic development will last until at least 2020.
Abundance of mineral resources: Africa has many mineral resources, some of
them found mostly or almost exclusively in Africa (i.e. platinum, chromium, cobalt, tantalum).
At the same time, many regions of the African continent are considered to be the least explored
areas of the world.
Energy potential: Africa offers outstanding perspectives for generations of
renewable energies: hydropower, solar energy, biomass and wind energy.
Demographic development: Africa has a young, dynamically growing population
that will lead to impetus towards expansion.
Consumer markets: the quickly expanding middle class in many countries is
considered consumption oriented, which will lead to greater customer potential.
Backlog demand: decade-long underdevelopment has led to huge investment
needs in nearly all economic sectors, especially in the infrastructure sectors of power generation,
electric utilities, construction, telecommunications and water utilities.
Stable finances: the African capital markets and banks have fared better in
the quickly deteriorating world financial system than any other region of the world. Foreign debt
(as % GDP) of many countries is significantly lower than that of most Western economies.
Big domestic market:the great potential of intra-African trade is vastly
unutilized. More than 90% of foreign trade inAfrican countries is currently executed with
counterparts in Europe, Asia and the Americas. The low basis will be the starting point of
long-lasting growth, even in the case of a world recession.
High yield: in many economic sectors returns on investment are significantly
higher than in the saturated markets of most western economies where interest rates are already
going negative. An average ROI of 30% is usual in their market. Entrepreneurial activities allow
above average yield predominantly in those countries where access to capital and credit lines is
limited (so-called ”Cash Economies“).
Diversity: Africa consists of 54 countries. Portfolio managers can benefit
from the big diversity by scattering their holdings into many nations, in contrast to single
countries like China and India.
Continuous democratization: In 1985, 37 out of 53 countries had undemocratic
and authoritarian governments. Today, it's only 11.
The two following pictures from Zambia and Zimbabwe visualize Africa’s huge potential, but
also the tremendous challenges that have to be dealt with by politics, economy, and society.
The development process will last for many decades and will play out very differently in various
regions of Africa.