It’s easy to see why until recently Africa has been a hard sell. It is still regarded as a place for charity rather than investment. But that view is out of date: much of the continent is booming now and investors are wising up.
The economy of sub-Saharan Africa is expected to grow by 6 per cent this year. Compare this with the eurozone’s paltry 1 per cent, and you start to see why smart money is moving from the old continent to the dark one. ‘Economists have had to rip up their numbers for how rich African households are — they were too low,’ says Charles Robertson, author of The Fastest Billion, a book about Africa’s economic revolution. ‘And this is just part of a much improved story.’
As a Brit of Nigerian ancestry, I was pleased that Robertson regards Nigeria as Africa’s most exciting economy. After all, as he points out, one in six Africans live there, and its stock market grew by 47 per cent last year. Following the rebasing of the country’s economic figures, Nigeria has over-taken South Africa to become officially Africa’s largest economy.
Improvements in the country’s governance are particularly encouraging. Nigeria now has a respected and credible finance minister, Ngozi Okonjo-Iweala, a woman who has put in place a number of sensible initiatives and ensured that government debt has remained below 20 per cent of GDP. Moreover, she is helping to double the country’s electricity supply by supporting the construction of new power plants.
Charles Robertson argues that ‘Anglo orbit’ African countries (in contrast to French orbit countries) have an openness to capital markets and the stock market. Nigeria, Kenya and Zimbabwe all have surprisingly large pensions funds, for instance, which enhance Africa’s increased appeal to foreign investors. ‘It is encouraging that there are pension funds in Nigeria worth $22 billion and these are growing fast, and buying assets significantly in equities and bonds,’ Robertson says.
Oil remains vital to the health of the Nigerian economy. With some of the major international oil companies such as Shell and Chevron restructuring and divesting of onshore assets, there is a rare opportunity for indigenous firms and foreign investors to snap them up. One firm doing just that is Seplat, which was listed on the London and Lagos exchanges a fortnight ago — a first for Nigeria. Its shares rose 16 per cent in the first week.
But there is far more to the country than the oil sector, and more to the continent than commodities. A youthful African population — studies show that the number of young workers will grow by 15 to 20 per cent every decade for the next 30 years — means sectors such as technology, telecommunications and finance, including mobile banking, are blossoming.
While the stock markets of the likes of Kenya, Nigeria and South Africa may be relatively buoyant, Egypt is arguably the most interesting African country to invest in. Despite its political troubles, Egypt is now beginning to attract textile manufacturing as it moves away from China and Vietnam, which challenges the old idea that Asia does manufacturing while Africa does commodities. Ethiopia is also experiencing heavy investment in manufacturing, much of it from China. Indeed, manufacturing looks set to see significant growth across Africa in the coming decade, particularly as increased foreign investment in infrastructure helps ease logistical difficulties. Western observers can be critical about rapacious Chinese involvement in Africa, but China is doing much more than western aid ever could to push Africa’s economy towards success.
The way that African businesses now respond and adapt to logistical and infrastructural difficulties is telling. In Lagos recently I met Sim Shagaya, founder of Konga.com, Nigeria’s answer to Amazon. Shagaya told me that he had managed to overcome the challenges presented by the absence of a reliable postal service by organising his own delivery system. Such perseverance, optimism and innovation in the face of adversity will stand the continent in good stead as its markets continue to grow and diversify.
Businesses such as Konga.com, which fuel growth by generating and investing funds back into their home country, are symbolic of a positive shift happening across West Africa, led by the Dangote Group, one of Africa’s largest conglomerates. Carl Franklin, head of investor relations at Dangote Industries, says that Dangote Cement in particular is flourishing. His advice for Africa investors is that large, urbanising populations offer the best opportunities, particularly where there are housing and infrastructure deficits.
Of course, the old concerns of inter-national investors still exist and you can hear plenty of horror stories about investing in Africa. It’s important to be extra vigilant for scams — 419s, as they are known. And these scams can be far more elaborate than the notorious ‘Yahoo email’ promising you untold riches if you just make a small initial deposit.
The issue of enforceability remains a problem, and there are concerns over corporate governance. But African companies are increasingly being held to global standards. Carl Franklin says that to compensate for the ‘baggage’ that comes with simply being Nigerian, companies such as his feel the need not only to adhere to international standards but to exceed them. Nonetheless, he says that ‘it’s a mistake to invest in any company that’s not happy telling you about itself. Look for investments that mix opportunity with transparency.’ The biggest risk for British investors might just be missing out.
Aita Ighodaro is the founding director of Idaro, a specialist in newer and emerging markets.