Africa: The land of opportunity for smart investors
With Standard Chartered
Africa has long been considered by many to be an interesting investment proposition, but with six of the world’s top 10 fastest growing economies on the continent over the last decade, it is a region that smart investors must now take seriously.
Successful investment in Africa does present significant challenges, but those with vision, endeavour and the guidance of a trusted partner have an opportunity to reap huge rewards.
There has been much hype and discussion about the untapped potential of Africa for some time now, but it is worth considering a few hard facts to put this investment opportunity into perspective.
The continent has 7.8 per cent of the world’s oil reserves and 7.7 per cent of its gas, much of it still untapped due to lack of infrastructure. According to the World Bank, Africa also requires investment of USD93 billion per year for the foreseeable future in order to improve ports, power plants and roads at an acceptable rate.
Despite its huge volumes of natural resources, African economies are not heavily dependent upon them. While resources still dominate export sectors, the reality is that domestic demand is now providing the principal growth impetus in Africa. Even taking into account softer commodity prices, African exports continue to grow as greater exploration spending and investment drive output gains. But almost everywhere, growth is driven primarily by growing domestic consumption.
Sustained economic reform across many African markets has seen many countries make rapid strides in GDP growth in the last decade. Economists at Standard Chartered believe we are experiencing the start of an African “supercycle” which will see markets double in size over the next 10 years.
Based upon a weighted average of key markets, Standard Chartered is currently anticipating 5.4 per cent GDP growth for Sub-Saharan Africa (SSA) in 2014. This growth is well above the global average and is being driven by a combination of political and economic reform, demographics and increased foreign direct investment (FDI). More than half of global population growth between now and 2050 is expected to occur in Africa, while FDI increased by 7 per cent last year to USD56 billion as investors became more confident.
South Africa is the most developed of African nations and it has reaped the rewards of a relatively stable economy and a developed corporate infrastructure. In 2013, FDI in the country almost doubled to USD10.3 billion. Despite this, sentiment towards South Africa is fairly downbeat as growth remains weak, and a series of problems, including protracted industrial unrest, cloud its future.
The country’s well established status as a gateway to the rest of the continent means it will retain its status as Africa’s ‘superpower’ for some time, but we believe there is also growth potential elsewhere.