What factors characterize the growth of emerging market economies? Massive population growth. A growing middle class. Consumers with more access to money. These certainly
apply to China and India. But they also apply to Africa. Africa is a ‘sleeper’ market. It’s a big investment story that’s still not on the radar of most professional investors. So, will Africa become the next big thing or just continue to be a ‘sleeper’ economy?
Here are five reasons why I believe Africa might just be a winner over the next decade:
1) Consumer spending is speeding up. Africa now has more families with annual income over $20,000 than India! Consumer spending grew at a compound rate of 16% between 2005-2008. That’s huge growth by anyone’s measure. Africa’s population reached one billion in 2009. McKinsey reports that the number of consumers earning more than $1,000/year will rise by 221 million over the next five years.
2) Steady economic growth, strongly positioned for the future. Economic growth averaged 4.9%/year from 2000-2008. This is 1.5% faster than the world economy. The IMF forecasts the economy of Sub-Saharan Africa to expand 5.5% in 2011. That’s over twice as fast as developed countries. Africa also enjoys a diverse and abundant amount of natural resources and minerals. As the world demand for these assets continues to grow, Africa is set to benefit big time.
3) China is investing heavily. Resource hungry China will continue to make big investments in China – more than $1 billion so far, according to Societe Generale Bank. China is also investing heavily in African construction and manufacturing sectors that will have a big know-on effect as Chinese money filters through the African economy.
4) Better governance, more stability should come with the economic growth. Studies show that economic growth leads to less corruption and better governance, not the other way around. This will also boost stability.
5) Lots of room to grow. Eleven new securities exchanges have opening in Africa over the past quarter century. But African equity markets still comprise only about 8% of emerging markets growth. This low percentage should grow as the economic environment improves.
I remain more bullish on Asia and Latin America for the best emerging markets investment opportunities. However, I’ll be researching Africa further over the coming months and will report my ideas here on how investors can profit from Africa’s potential. I do already believe that Africa could easily become one of the biggest emerging market stories over the next ten years.Don’t be a stranger leave a comment below and let me know what you think or send them to my Twitter. Also remember to sign up for Stocks on Wall Street’s Monthly Newsletter.
Disclosure: "No Positions"