Africa: The Last Investment Frontier

Recently, I had to make a bit of a career move decision. The question really being: "should I stay on the home continent - with all the red tape that being white and male and Zimbabwean entails?"

I should probably admit that this life crisis took place on a beach in Mozambique's Bazaruto Peninsula, with the emerald seas and the coconut palms and the snorkelling with the tropical fish. Bias under the circumstances is a little bit expected, I should think.

So after much soul-searching, interspersed with swimming and fresh mangos for breakfast and the constant search for cowrie shells along seemingly endless stretches of sand, I eventually decided to ask around. Cue - the African story. As transcribed from my coffee meet with someone in the know (I literally asked to take notes - it was awesome).

Some 2010 stats (I pulled these from the World Bank - if you've taken the iPhone/iPad step, there is a wicked world bank app with all this data):

Country	GDP (US$ billions)	GDP Growth Rate	Population (millions)	GDP per Capita US$
Egypt	218.9	5%	81.1	2,699
Ethiopia	29.7	10%	82.9	358
Ghana	31.3	7%	24.4	1,283
Kenya	31.4	5%	40.5	775
Nigeria	193.7	8%	158.4	1,222
South Africa	363.7	3%	50.0	7,275

If you compare ratios of population to GDP, you can see that there is some significant "untapped" potential. For example, South Africa (probably the most developed African economy) has a GDP of $363.7 billion with a population of 50 million. Just compare that to Ethiopia's GDP of 29.7 billion for a population of 82.9 million; or Nigeria's GDP of $193.7 billion for a population of 158.4 million. Those are some crazy differences. Then, if you look at the GDP growth rates, you can see that these economies look like they're in the process of being tapped (Ethiopia and Nigeria have growth rates of 
10% and 8% respectively, compared to South Africa's 3%). And that's in real terms.

The question then becomes: how does this practically translate into growth patterns for African industry?

So, with all this economic growth, the world is seeing the rise of Africa's middle class: a middle class that is ready and desperate to consume. There is therefore a concurrent rise of African FMCG Industries (Fast-Moving Consumer Goods) in order to satisfy the growing demand of this new middle-class consumer. Also, in addition to the increase in domestic demand for food, there is a World Food Crisis occurring and/or being projected. This has resulted in plenty of foreign aid money being poured into Agriculture (a good example is the US agriculture programs being implemented in Ghana).

At the same time, there are increasing Trade Flows between Africa and the East. For the first time, China is now Africa's largest trading partner. Chinese direct investment in Africa can be seen in:

• the establishment of special Chinese economic zones in various African countries, including Ethiopia, Zambia, Nigeria and Egypt;
• the purchase of significant shareholdings in African companies (Standard Bank is 20% owned by the Industrial and Commercial Bank of China; Metorex was recently purchased by the Jinchuan group - Metorex has huge copper and cobalt mines in Zambia and the DRC); and
• China's extensive investment in African infrastructure.

Which brings me to the next two industries that are seeing growth:

• Natural Resources (mining) - China and the industrial nations need to source their raw metals from somewhere, and Africa is mineral-rich. We can also draw the distinction between rare metals and base metals. With respect to base metals, China's manufacturing industries have built up inventories over the last few years; but with the recent global crisis, it's not clear that global demand will clear those inventories - so this may cause a drop in the demand for base metals like iron ore. However, the catalytic and precious metals are likely to still be in demand - since precious metals are used as store of value, and catalytic metals are being used in the "greenifying" of machinery. Given the development of carbon tax legislation in the First World, accompanied by the development of carbon tax credits, the demand for those metals is unlikely to change. On a separate supply-side point, the majority of Africa's mining potential is unexplored. Right now, it accounts for 30% of the world's mineral resources, but only about 10% of the supply (roughly). So mining - it's where it's at.
• Infrastructure - this is the biggest bottleneck in Africa's economic growth. The development of rail and road and electric power is a non-negotiable if the rest of the World wants access to our resources. Which they do.

And then the big boy: Oil. Africa is the Crude Continent. Now that South Sudan has split away from Sudan, the easing of political risk should see those oil reserves being further explored, particularly when the new pipelines through Kenya and Ethiopia are completed, which will further reduce the oil revenue tension between Juba and Khartoum. New oil fields have recently been found in Uganda. And obviously, the bigger players like Nigeria, Angola and the North-African countries are still at the forefront of oil production.
At the same time, certain sectors have emerged very strong from the global crisis. The Gold Mining companies, for example, have come out very cash-rich. So they'll be looking to invest their cash in new projects. 

And all of the above will have to be funded and insured. So wherever this is happening, Banks and Insurance companies will follow.

In the long-term, Africa has the fastest growing population in the world. It's been suggested that by 2020, Africa will have a bigger working age population that either China or India. That's a lot of manpower to drive natural resources that are almost untouched.

So the Asians may have their tigers, and the Latin-Americans may have their pumas, but Africa has her Lions.

Oh - and good weather and better fishing.

It's why I want to live here.


For more reading, there are a number of papers out there. I quite like Mckinsey reports, so here's one:

http://www.mckinsey.com/Insights/MGI/Research/Productivity_Competitiveness_and_Growth/Lions_on_the_move


- available in epub format to be read on an iPad. How I love Apple.