If you plan a trip to Africa anytime soon, think about how a few of your dollars could easily turn into profitable investments for the long term. The major indexes and stock exchanges around the world now see Africa as the next big thing in the emerging new markets sector. The chances are, the next time you talk to your stockbroker or attempt to pick new funds in emerging markets or try to diversity your portfolio and risks of sorts, your shares could be from sectors in Mali, Malawi, South Africa, Rwanda, or Nigeria.
Africa is no longer the place for tourism alone, Christian missionary work or volunteer groups of the past. It is the new home for small investors and multinational corporations alike. Overall GDP for the continent is growing 5%, inflation is below 10% and tourism is up 10% in 2006 alone. The key to more growth and development would be direct foreign Invest (DFI), and some support from donor institutions. Investment in Africa not only means packing your money and taking it home to build houses, buy cattle or to start your own line of business. It also means owning shares in the companies that control the business industry in Africa.
When these companies make profits, as most are expected to do, you could very easily become the next billionaire CEO depending on your shares.
Why Africa for an intrepid investor?
The reasons to invest in Africa are plentiful. The world Bank’s Paulo Gomes, the man in charge of 25 Sub-Saharan countries has laid out the reasons in his tutorial: “Africa: The Rising Economy”
Among the reasons Gomes has pointed out are high prices for oil and minerals, peace, stability, and an overall brighter outlook for the continent. “Ten years ago there were 16 active conflicts, and now we have four” he says. This means Africa and its institutions of political and economic leadership such as the African Union, ECOWAS, the African Development Bank, NEPAD and other associated bodies are being taken seriously for what they are by today’s investors.
New and better leaders have emerged and they are demanding fair treatment at world trade conferences. Peace agreements have been signed, wars have ended and it’s time to invest in the future. In both Washington DC, seat of the World Bank and the International Monetary Fund (IMF) and decision makers in the US government and congress, as well as in Wall Street and around the globe, the economies in Africa need nurturing and encouragement to blossom.
The IMF especially credits Sub-Saharan Africa with an average 5 % growth each year since 1994 despite its dogged problems. Africa attracted 3% of net private capital flows to developing countries resulting to $491 Billion, World Bank statistics show. The bank highly recommends more investments in the agro-business and manufacturing sectors.
South Africa: The New Thailand and Singapore.
Singapore may be small with less than 4 million people and Thailand may be big with about 66 million, but the two now lead Asia in terms of the number of completed free trade agreements according to the Asia News Network (ANN), an alliance of 14 newspapers in 12 Asian nations.
What many Asian nations have done is to open up their economies to external markets with the promotion of reform and deregulation. The major consequence is access to important world markets including the US and China. The recent Chinese invasion of Nigeria and South Africa (SA) is not to promote democracy or spread communism. Quite to the contrary, these two nations not only represent the new face of Africa with advances in democratic governance but they seem to be telling investors everywhere that Africa is no longer a plaything in the hands of rival superpowers.
In South Africa, it is about acquisitions, partnerships, jobs, and opportunities for trade and investment. In SA, we are left with a leadership that has better chances to level off inflation, interest rates, reduce external debt, and continue with moves towards privatization. SA has liberalized its markets in mining, telecommunications, hydroelectricity, hotel, and construction. The best jobs are in banking and finance, real estate, business services, and construction while the informal sector paid less and appeared less secure.
If SA is home to Nelson Mandela, it is also “aiming to copy the miracle that built Asia’s tiger economies by building a combination duty-free industrial development zone and deepwater port” according to George Ochoa and Melinda Corey in the book “The 100 Best Trends of 2006: Emerging Developments You Can’t Ignore” Africa is no longer a forgotten continent.
The cold war era is gone. Apartheid is gone. Democracy is here and the continent is competing for the attention of global investors and firms looking to make a profit. The telecom, banking and finance, services, and construction sector are where the biggest interest lies. SA is an emerging market with an enormous supply of natural resources, well developed financial, legal, communications, and energy and transport sectors. Its stock exchange ranks amongst the 10 largest in the world. Its GDP is about 533.2 billion, about 25% of the entire continent.
SA has the largest broadband market with over 120, 000 users. This is expected to double. SA was the first to legalize and open up its markets to Voice over IP (VoIP) based calling. Vodafone, the British mobile phone operator and largest mobile phone company in the world, has upped its shares in Vodacom, a minority partner in SA from 35% to 50%. The deal is worth about $2.4 Billion. Since 1995, Citi Group Inc has grown to become South Africa’s 6th largest bank and the largest foreign back in the continent.
Recently, I read a headline in the All Africa online magazine that said “The Chinese Are Coming”. I would add that they are not only coming but have dug a stable for themselves in the continent. The Chinese government policy of “Go Global” encourages overseas expansion by its state companies to ensure that they can compete with US, European and Japanese multinationals in the long term.
It’s a capitalist trend from a communist nation that now boasts 7 billionaires and 300, 000 millionaires, according to Bloomberg Markets. It’s called Plutocracy. China has invaded the vehicle industry in SA with the introduction of the “star”, a single cab light pick up truck. The first shipment of 300 vehicles to SA is expected at the end of August. The Chinese will provide the training of engineers to the service and supply of spare parts. According to Current History, a journal of contemporary World affairs, some 80, 000 Chinese migrant workers have moved to Africa and created a new Chinese Diaspora that is unlikely to return home.
With telecom has come call centers or contact centers. SA is trying to do what India does best, servicing customers in faraway places such as the US and China.
A report released last year by the ION group ranked SA ahead of India, Mexico, and the Philippines with more chances of securing better investment in this sector. The industry is set to net close to R1-billion in foreign Investment in 2006 alone. The country already boasts 535 call centers, employing an estimated 65, 000 people. As if replicating India and China is not enough, SA is doing local number portability, where you can switch between phone service providers without experiencing any change to your phone number.
Competition between Vodafone, Virgin Mobile, MTN, and Cell C has spurred interest for more choices and lower prices.
Show Me the Money
For small investors, the services sector and frontier markets still dominate the landscape. These concentrate on mining, agriculture, and tourism or MAT’s.
Here, your natural choice would be investments in a copper mine, sugar cane, or hotels. Financing can be from personal savings, small micro-lenders, or through commercial banks and NGO’s. Michael Power, a portfolio manager, and equity Strategist at Investec Asset Management recommends a principle called BBC’s. It is Banks, Brewing, and Cement. Recently, he has added a T to make it BBCT. The T stands for telecommunications and this came in wake of the privatization craze throughout the continent. He places MAT’s to be the preserve of multinationals. These generated over 80% of foreign exchange earned by most African nations.
The BBCT’s are great when a potential investor sector or nation is “powering ahead” but says it offers no protection against devaluation. When devaluation threatens, he advises turning to the MAT’s.
For bigger investors, the IFC (Investment Climate Facility) is the largest source of multilateral loan and equity financing for private sector projects in Africa.
The ICF is headquartered in Johannesburg, SA. It has close relationships with the African Development Bank with endorsements from The Commission of Africa, The G8 at Gleneagles, and NEPAD. Supporters include Shell, Unilever, and many Anglo-American firms. The Co-chairs are former Tanzanian President Benjamin Mkapa and Niall Fitzgerald, Chairman of Reuters. At the World Economic Forum for South Africa held May 31st to June 2nd, 2006, the IFC approved a $30 million grant through the (ICF) to help private sector investors spur growth in the continent.
The ICF says it will fund projects that offer the highest rates of return to investors especially for small businesses that emphasize environmental protection while stressing job creation and poverty reduction.
Who said you can’t be a competitor in Africa and remain a competitor in other parts of the world where the risks are the same?