Perhaps Africa is the investing destination we have all been waiting for now that Asia and Latin America have become practically mainstream.
A colleague gave me an insight into the global village that investors inhabit these days. She told me how she had recently found herself in China to discuss opportunities in the consumer staples sector with a well-known Swiss multi-national and all they wanted to talk about was Africa. It seemed a long way to go to share ideas about an investment destination on both of their doorsteps.
To be fair, the purpose of the meeting was to discuss Nestle’s businesses in Asia, Australia and Africa and the location made sense because China is expected soon to become Nestle’s second biggest market. It is not surprising that so much of the conversation should have focused on Africa as it is a land of “limitless possibilities”, in the company’s assessment.
It is not hard to see why Nestle is so keen on Africa, a region in which it aims to triple its business by 2020 through organic growth rather than by acquisitions. Some of the statistics are staggering. Africa is home to the world’s fastest-growing population; there are already 500 million mobile phones in Africa, with 850 million expected by 2015; Africa’s workforce is expected to be the world’s largest by 2035, bigger than both China’s and India’s; consumer spending is growing in Africa from around $900bn today to an anticipated $1.4 trillion by 2020.
A similar picture emerges from a research paper I read this week from Citi, which suggests that Africa’s 4pc share of the world’s economic output might grow to 7pc by 2030 and to 12pc by 2050. Over the same period, Western Europe’s 19pc share is expected to fall to 11pc and then 7pc. North America’s, 22pc today, is predicted to drop to 15pc and then 11pc.
For investors concerned that the best of the Chinese economic miracle may be in the past and worried about the seemingly intractable debt-related problems in Europe and the US, Africa might seem like the final frontier. Perhaps Africa is the investing destination we have all been waiting for now that Asia and Latin America have become practically mainstream.
The reality is a bit more nuanced than that because, while there are many fantastic opportunities in Africa for investors, the challenges remain daunting. The rise of the continent, and especially its integration into the global economy as something more than a treasure trove of resources for a neo-colonial China, is somewhere between possible and probable but by no means a done deal.
What is also clear is that the investment “story” in Africa is complex. It is an extremely heterogenous region with enormous variations in its countries’ populations, natural endowments of resources and geographical characteristics.
A belief has evolved that Africa is principally a commodity play and that its future, like Australia’s, will be determined by the size and direction of China’s economic development. The pessimistic view is that a slowdown in China’s growth, or even just a rebalancing away from investment to consumption, will leave Africa high and dry.
That’s probably wrong for several reasons. First, only a third of Africa’s recent economic growth is commodity-related. Second, oil exports are a key element in Africa’s commodity mix and these would clearly benefit from an acceleration in Chinese consumption and increased car ownership. Third, the example of Nigeria, where growth has doubled in recent years to over 6pc despite stagnating oil production, shows that this is a multi-faceted investment story.
China is an important player in Africa and it would be wrong to underestimate the influence it has had in developing its infrastructure. Trade with China has grown by nearly 40pc a year, more than twice as fast as with either Europe or the US. But there is an interesting domestic consumer story as well, albeit one that is subtly different from the emerging middle class tale so familiar in Asia.
In Africa, the starting point is very low so expect products like beer and toothpaste to grow faster than cars and computers and it is by no means a given that urbanisation will go hand in hand with industrialisation according to the Asian model. Services already account for nearly 60pc of the sub-Saharan African economy.
Africa is a great illustration of why emerging markets are the natural hunting ground of active investment managers. Picking the winners and losers from Africa’s remarkable transformation will not be easy but the opportunity, as Nestle has identified, is enormous
What is also clear is that the investment “story” in Africa is complex. It is an extremely heterogenous region with enormous variations in its countries’ populations, natural endowments of resources and geographical characteristics.
A belief has evolved that Africa is principally a commodity play and that its future, like Australia’s, will be determined by the size and direction of China’s economic development. The pessimistic view is that a slowdown in China’s growth, or even just a rebalancing away from investment to consumption, will leave Africa high and dry.
That’s probably wrong for several reasons. First, only a third of Africa’s recent economic growth is commodity-related. Second, oil exports are a key element in Africa’s commodity mix and these would clearly benefit from an acceleration in Chinese consumption and increased car ownership. Third, the example of Nigeria, where growth has doubled in recent years to over 6pc despite stagnating oil production, shows that this is a multi-faceted investment story.
China is an important player in Africa and it would be wrong to underestimate the influence it has had in developing its infrastructure. Trade with China has grown by nearly 40pc a year, more than twice as fast as with either Europe or the US. But there is an interesting domestic consumer story as well, albeit one that is subtly different from the emerging middle class tale so familiar in Asia.
In Africa, the starting point is very low so expect products like beer and toothpaste to grow faster than cars and computers and it is by no means a given that urbanisation will go hand in hand with industrialisation according to the Asian model. Services already account for nearly 60pc of the sub-Saharan African economy.
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