In cafes and offices in parts of the eurozone businessmen complain of bright graduates heading to make their careers in Angola’s booming economy and elsewhere in sub Saharan Africa. This developing economic pull reverses decades of Africa seen as blighted by war, famine and corruption. Africa has been in the portfolios of bold investors for some time, mainstream investors should follow their lead.
Sub-Saharan Africa is set to grow at around 6 per cent a year, faster than is the case in India. Incomes are rising, bringing prosperity to a burgeoning middle class. Here the talk is not of recession and unemployment but of managing the changes fuelled by economic growth. This growth is investment-led, not sparked by a surge in mineral prices, as happened in the 1970s. Foreign direct investment into Africa increased fivefold since 2000 and 5 per cent in the last year.
Growth includes countries like Ethiopia which do not have significant mineral wealth. Investment has come from private equity firms and institutional investors, sovereign wealth funds and family offices, drawn by the returns available from established African businesses. Chinese, Indian and Brazilian companies and global names such as Walmart are attracted to the African consumer. There is increasing African capital being invested into the continent. Since 1994, richer African countries have set up sovereign wealth funds most recently with gas-rich Tanzania. Merits Africa is attracting investment on its merits. The IMF noted that sub-Saharan Africa’s growth is helped by “prudent macroeconomic management”, debt-reduction programmes in the developed world that have allowed Africa to be growth orientated; and the use of new communications technologies.
Africa still has too many barriers to enterprise. A young businessman in Swaziland has to wait 56 days to register his company. A small business in Niger takes a year to find a warehouse. Progress is being made. Angola has brought in laws supporting small businesses, creating “one-stop-shops” across Angola to offer advice and support and, crucially, access to credit. Walk into any of the eight “Entrepreneur Counters” already open and you can gain credit up to the value of $6,500 to help get your idea of the ground there and then. Soon, 25 per cent of government goods and services will have to be purchased from smaller companies. Tech hubs set up in cities from Nairobi to Lagos foster the exchange of technology; while initiatives such as my own Planet Earth Institute seek to drive scientific development across Africa. These can help harness the expert knowledge and international business networks of the diaspora of 30 million Africans who live outside the continent, and could pay for themselves many times over in increased economic activity.
Africa is a youthful continent, with a median age of 20 years. The number of working age people in Africa will double to 1.1 billion by 2040. Coming home And the African diaspora are coming home. Entrepreneurial Africans are returning to establish businesses on the continent. Africa has more cities of over 1 million population than Europe and has more $20,000-plus earners than India. All this is powering consumer facing service sectors, sectors where growth is not correlated with the rest of the world – a tempting combination. Agriculture is a key sector for growth in Africa. It has 60 per cent of the world’s uncultivated arable land. Food distribution is improving efficient as transport infrastructure develops and agricultural policies improve.
The agriculture sector can diversify into processing. Africa is a big exporter of raw agricultural products. These could be processed, for example by selling fruit juice locally instead of supplying it as concentrate to the outside world, then re-importing it as fruit juice. Global investors need to refresh their views of Africa, the perception of the continent lags reality, and with such an information disconnect, value is on the table.