Conventional wisdom holds that Africa’s fortunes have dimmed, due primarily to lower oil and commodity prices.
To be sure, foreign direct investment in Africa dropped 46% in the second quarter of 2016, according to the Organization for Economic Cooperation and Development. An Ernst & Young report, quoted by the Web site IOL.com, notes that “investor sentiment towards Africa is likely to remain somewhat softer over the next few years.”
Strong fundamentals point to real momentum.
But if Africa were a stock, it would be a value play. Africa’s strong fundamentals point to real momentum in coming years. It’s true that the investment landscape has changed and there have been both economic and political hits in recent years, but this has not derailed the continent’s growth story. The International Monetary Fund projects that Africa will be the world’s second-largest economy within the next few years.
Here are three positive indicators from our opinion that favor investment in Africa.
Young and growing population:
With a population of more than 1 billion people, expected to double by mid-century, Africa offers an enormous potential market. And while the rest of the world is aging, Africa is young. According to Deloitte, some 200 million Africans, about 20% of the population, are between the ages of 15 and 24, a figure expected to rise to 321 million by 2030.
The global workforce may be shrinking, but in a few years Africa’s workforce will number some 1.1 billion, surpassing that of China and India. Africa’s young demographics point to economic strength, in that a working-age population is associated with favorable rates of GDP growth. Moreover, young Africans are also consumers who want the latest products, services and technology just like anyone else does.
According to a recent Harvard University study, two major factors will determine Africa’s future economic growth prospects: growth in the working-age share of the population and institutional quality. While many African countries will see the youth workforce rise, only a few, such as Ghana and Namibia, have strong institutions and economies to take advantage of the bulge in workers.
Money to spend and a love for brands:
African consumers and businesses spend a total of $4 trillion today. By 2025, McKinsey projects that household consumption will reach $2.1 trillion and business spending $3.5 trillion – a total $5.6 trillion in business and investment opportunities.
In addition, both quality and brand matter to African consumers when they are making buying decisions. Some 58% of consumers are brand loyal and many are willing to pay a higher price for well-known brands, a McKinsey consumer report says. More Africans live in urban centers, which drive economic activity. Urban consumers in Africa, similar to those in cities across the globe, want a modern and quality shopping experience.
Cities are key to capturing African’s consumer opportunity. The 15 largest African markets generated 89% of 2015 demand and are expected to be responsible for 82% of consumption growth in the decade through 2025. In Nairobi, Kenya, and in the Nigerian cities of Abuja, Ibadan, Lagos, and Port Harcourt, per-capita consumption is more than double the national average. Also, the top three cities in Angola and Ghana account for more than 65% of national consumption.
Economy getting stronger and more diverse:
While growth has slowed among oil exporters, the rest of Africa is continuing to move forward with positive growth rates. Countries not dependent on resources for growth, typically smaller economies, are progressing with economic reform and increasing their competitiveness. These countries, which include Botswana, Cote d’Ivoire, Ethiopia, Kenya, Mauritius, Morocco, Rwanda, Senegal, Tanzania, and Uganda, posted average GDP growth of 5.8% a year between 2010 and 2015.
In addition, African countries are beginning to diversify beyond commodities and working to attract investment. Two countries in particular are showing positive growth based on ambitious diversification strategies: Morocco, with its initiative to accelerate global innovations exports, and Ethiopia, with its industrialization strategy.
The World Economic Forum notes that every African country has an “investment promotion agency” that acts as a one-stop shop for investors, assisting with registration, taxes and other steps to establish companies locally. Energy, technology, health care, and tourism are just a few of the sectors that hold great potential for investors.
In addition, my home country of Angola has been working to diversify resources. Tourism is one of the key opportunities. Angola, the seventh-largest country in Africa, has more than 1,000 miles of beautiful coastline. In addition, Angola’s new political leadership that is expected to be voted in and inaugurated later this year is likely to welcome new investment.
Traditionally, there were several go-to industries on the continent, including oil and diamonds, and key countries for investors included South Africa, Egypt, Nigeria, and Morocco. Now, the need to avoid political barriers and the need to divert from commodity-focused economies has opened the door for new industries including technology, health care, and fast-moving consumer goods, benefitting smaller countries including Rwanda, Botswana, and Mauritius.
Africa today is undervalued, with robust growth prospects In today’s environment. Investors with foresight and a long-term view will be positioned to capture the opportunities ahead.