NEW YORK - Despite a slowdown in the global economic recovery and an increasingly difficult global environment, Sub-Saharan African countries are continuing to grow. Africa is certainly getting harder to write off."From an investment standpoint, it's a market that's hard to ignore, because it's a massive continent with a huge and young population and very important resources," said David Damiba, a fund manager at Renaissance Asset Managersin London.
Following a 4.6 percent expansion in 2010, the region’s output is expected to grow by 4.8 percent this year and by more than 5 percent in 2012 and 2013. Indeed, African countries are among the fastest growing countries in the world: Ghana is projected to grow by well over 10 percent this year; and nearly 40 percent of the countries in the region are likely to see 6 percent or higher growth rates.
Several African countries, with developing financial markets that are likely to attract institutional financial investors, are promising candidates to become part of a second generation of "emerging market" countries, IMF analysis shows. The same crucial developments that presaged the arrival of institutional financial investors in emerging markets in the 1980s are taking place in parts of sub-Saharan Africa today—growth is taking off, the private sector is the key driver of that growth, and financial markets are opening up.
South African companies that deal in consumer goods, financial services and telecommunications have expanded their businesses very successfully into other emerging markets. And they have a few other factors on their side.
First, apartheid forced businesses to become more creative in order to survive. So business managers don’t mind taking on risk as much as their European or U.S. counterparts.
The country’s ethnic diversity and tumultuous recent history has made them more open to different cultures and less dogmatic about business methods. Companies there have become very adept at working closely with local partners.
South Africa companies have also gained valuable experience by selling their products to the country’s own emerging middle-class and low-income groups. This then prepared them to operate in similar markets further afield.They also have relatively large, local capital markets compared to their economic output.
Capitalization of the Johannesburg stock market is roughly twice the nation’s GDP. In many other countries, stock market value simply can’t measure up to the economy’s yearly output. Yet the relatively large size of South Africa’s allows companies there to get hold of funds more easily than some of their developing country competitors.In addition, the country has sophisticated debt markets that companies can use to raise long-term funds.
In fact, Africa is in the process of becoming the new frontier for emerging market investors, but the enthusiasm is no longer limited to South Africa. Instead, from bases in London and New York, Johannesburg and Lagos, flows of investment into the entire continent is gathering pace, to countries like Kenya, Ghana and Botswana. As a matter of fact, last February, the Russian-based investment bank Renaissance Capital announced the launch of a billion-dollar pan-African investment fund. By 18 April, the company announced that it was well on the way to creating “a fully-fledged, pan-regional investment banking, research and asset management operation”, with offices in Lagos and Nairobi.
So, with all of the attention on collapsing stock markets and governments around the world bailing out the global financial systems, one would assume that investing in an under-achieving economy like Africa would be the furthest thing on the minds of international investors. We can conclude that stock markets across Africa are booming and funds focusing on sub-Saharan Africa have exploded in the past few years. In fact, with a market capitalization of well over $100 billion, Africa's stock markets are substantially larger than Central Europe and Russia were in the mid-1990s when they opened up to foreign investors.
As a conclusion we can say with no doubt, that Africa has a long way to go. Analysts cay say why risk any of your money in Africa when established western companies have now become such bargains, because the best investment opportunities lie where perception differs from reality. Much like Russia and Central Europe in the early 1990s, Africa fits that model perfectly. It's undervalued. It's difficult to invest there. But consider that in 1996, the entire market capitalization of Russia and Central and Eastern Europe was less than $30 billion – at the time; it was less than the market capitalization of Microsoft. Twelve years later, Russia alone had turned into a well over a $1 trillion market and Russians were buying up the most expensive properties in London. You don't need to be a starry-eyed specialist to recognize the same logic may apply to Africa.