Interested in Investing in Africa? Here’s How (Investopedia)

Africa’s journey from when it was tagged as the “The Hopeless Continent” on the cover of The Economist in May 2000 to December 2011, when the same publication put “Africa Rising” on its cover (and then “Aspiring Africa” in March 2013) has been anything but boring. Africa has become the newest destination for emerging markets investors. From 2000, according to the World Economic Forum, “half of the world’s fastest-growing economies have been in Africa.” Ghana and Ethiopia showed real GDP growth of over 8% in 2018.

KEY TAKEAWAYS

• Over the last 20 years, Africa has gone from being seen as a “hopeless continent” in terms of its financial potential, to an interesting prospect for emerging market investors.
• The continent has extensive natural resources, a young and increasingly educated workforce, more stability in terms of governance, and more prospects for economic growth than in years past.
• For new investors looking to make a small investment, mutual funds or exchange-traded funds make the most sense.
• More experienced investors may also consider American depositary receipts (ADRs) as a way to participate.

Vast Natural Resources

The African continent is incredibly rich in natural resources. It has huge, untapped reserves of natural gas and oil (10% of the world’s reserves) and largely unexploited hydroelectric power. It is home to vast gold, platinum, uranium, iron ore, copper and diamond reserves. Currently, only 10% of Africa’s arable land is being cultivated, yet it holds around 60% of the world’s cultivable land. As such, Africa has become a magnet for foreign direct investment (FDI).

Africa also has the advantage of a large and relatively cheap educated labor force. The continent is undergoing a demographic transformation, with youth as its theme; there is a very high proportion of Africans in their 20s and 30s with fewer dependents — both old and young — that will play out over the next decade.

There is stability in terms of governance; the countries that witnessed terrible periods of unrest have emerged as success stories. There are better policies in place, trade has improved and so has the business environment.

According to the World Economic Forum, by 2030, over 40% of Africans will belong to the middle or upper classes, and there will be a higher demand for goods and services. In 2030, household consumption is expected to reach $2.5 trillion, more than double that of 2015 at $1.1 trillion.

Much of that $2.5 trillion will be spent in three countries: Nigeria (20%), Egypt (17%) and South Africa (11%). But Algeria, Angola, Ethiopia, Ghana, Kenya, Morocco, Sudan, and Tunisia will attract companies seeking to enter new markets. The sectors expected to grow the most in the next 30 years are food and beverages, education and transportation, housing, consumer goods, hospitality and recreation, healthcare, financial services, and telecommunications.

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