15 of the world’s 29 fastest growing economies in the world are in …no not Asia, but Africa. Africa today is where the BRICS were a decade ago, signalling huge growth potential. Ten of Africa’s 54 countries have a GDP per capita greater than China, while 17 have a GDP per capita greater than India.
This means more consumer power, because even though China has a large economy, its people remain poor. African incomes are rising, bringing prosperity to the middle class. Here the talk is not of recession and unemployment but of managing the changes fuelled by economic growth.
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Consensus view
Few would argue that Asia enjoys most attention from investors seeking fast growing economies. But this is a popular view that is obscuring regions with stronger potential. Sub-Saharan Africa is set to grow at around 6 per cent a year, faster than India. Asia, excluding Japan, is projected to grow at 7 per cent, but these rates are regularly revised down.
Africa’s economies are growing because of investment, not because there has been a surge in mineral prices, as happened in the 1970s. We’ve seen foreign investment into Africa increased fivefold since 2000 and 5% last year. Growth includes countries like Ethiopia which do not have significant mineral wealth. Landlocked Rwanda, without natural resources but with a huge population, has been able to sustain a growth rate of 8 per cent thanks to sensible economics. Africa’s states that are resource-rich are now better at managing their wealth: Botswana used its diamond wealth to develop quickly, growing from one of Africa’s poorest countries at independence in 1966 to become a democratic, stable, and upper middle-income country.
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By GlobalDataInvestors are paid for getting in early. Take Asia, returns there came in the early years. £1000 invested in Asia in 1988 (when the MSCI Asia ex Japan index started) was worth £4016 five years later – equivalent to 27% annualised growth. The same sum invested in 2008 is worth just £1517 today – a more pedestrian 7.5% annualised growth.
The capitalisation of Africa’s stock markets grew from $245 billion in 2002 to more than 1 trillion in 2010 – growth of 22% a year. According to economist Africa economic expert Paul Collier, returns on investment in Africa are higher than in other regions: the average return on capital for companies was two-thirds higher than that of comparable companies in China, India, Indonesia, and Vietnam. And Africa is attracting investment on its merits. The IMF noted that sub-Saharan Africa’s growth is helped by ‘prudent macroeconomic management’, debt-reduction programmes in the developed world that have allowed Africa to be growth orientated; and the use of new communications technologies. And Africa is a youthful continent, with a median age of 20 years compared to 30 in Asia. The number of working age people in Africa will double to 1.1 billion by 2040. With rising costs, Asia is no longer the low-wage factory of the world.
Brain claim
The African diaspora is coming home. Entrepreneurial Africans are returning to establish businesses on the continent. Africa has more cities of over 1 million population than Europe and has more $20,000+ earners than India. All this is powering consumer facing service sectors, sectors where growth is not correlated with the rest of the world – a tempting combination.
Agriculture is a key sector for growth in Africa. It has 60 per cent of the world’s uncultivated arable land. Food distribution is improving efficient as transport infrastructure develops and agricultural policies improve. The agriculture sector can diversify into processing. Africa is a big exporter of raw agricultural products.
It’s true that Africa still has too many barriers to enterprise. A young businessman in Swaziland has to wait 56 days to register his company. A small business in Niger takes a year to find a warehouse. But as these brakes on progress are addressed, growth will pick up. Angola has brought in laws supporting small businesses, creating ‘one-stop-shops’ across Angola to offer advice and support and, crucially, access to credit. But global investors need to refresh their views of Africa.
The perception of the continent lags reality, as investors extrapolate past success in other regions. With such an information disconnect, value is on the table for investors.
Alvaro Sobrinho is Chairman at Banco Valor
