Why Africa is worth exploring

Africa may seem an unlikely investment opportunity, but with its markets growing at a clip, the continent looks increasingly attractive.

Isn’t Africa a mess?
Yes. Much of sub-Saharan Africa has got poorer in recent decades, thanks to wars, corrupt or weak governments, lack of education and healthcare, and crippling debt ­ most of the world’s poorest 30 countries are African. And its share of world exports fell from about 6% in 1980 to 2% in 2002.

The contrast with Asia is striking. Malaysia and Ghana are broadly similar countries: both achieved independence in 1957, both lie just north of the equator, and both had similar levels of income dependent on commodities. At the time of independence, Malaysia’s income per capita was roughly equal to Ghana’s. Today it is ten times Ghana’s ­ yet Ghana is a success story in African terms.

So why invest in Africa?
To help Africa help itself ­and make profits in the process. Despite the continent’s structural problems and the relentless focus on aid and debt relief, Ghana’s stockmarket was the world’s third-best performer last year, while Egypt topped the global table and is soaring this year too. In the long term, Africa’s best chance for prosperity and stability is not from dependency on foreign aid, but from sustained private investment and enterprise.

Currently, only about 1% of the private capital in the world is invested in sub-Saharan Africa. As the continent becomes gradually more prosperous, levels of private investment are set to increase significantly, especially since (according to World Bank figures) Africa currently offers ‘the highest returns on foreign direct investment of any region in the world’.

How are Africa’s economies doing?
Currently, they are doing pretty well. Sub-Saharan Africa is experiencing its ‘best economic performance in years’, according to Goldman Sachs economists, who reckon ‘gross domestic product growth could average 5% over the next decade, compared to less than 3% over the past 30 years’.

They also point to dramatic differences in outlook between countries, with Botswana near the top and Zimbabwe near the bottom. The big growth areas for the continent are infrastructure, agribusiness, vehicles, tourism, finance and natural resources.

But is it safe to invest?
Investing in Africa is high risk for many reasons, including currency fluctuations, poorly developed markets and political risk. (Although in Transparency International’s most recent survey, Botswana is rated less corrupt than Italy or Greece.)

Yes, there are still some poorly run and unstable countries, but the number of African democracies has jumped from just four in 1990 to 17 today. At the same time, many countries have begun liberalising their economies and developing their capital markets. A good example is Uganda, whose GDP grew an impressive 7% a year from 1993 to 2002.

The future of the world is Africa

The African Business Weblog is dedicated to contributing to the learning environment, diversity and global opportunities in African business, investing, media, internet marketing, workshops, conferences, stock markets, venture capital, tourism, blogs, web 2.0, africa SEO and other innovative business strategies for Africa.

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