Practical analysis for investment professionals
03 August 2015

Africa Rising: Now Is the Time to Invest in the World’s Fastest-Growing Continent

Dar es Salaam

Ever heard the phrase “Africa is not for sissies”? Having been born and raised in South Africa, I’ve certainly said it many times — we tend to think it takes a certain amount of “toughness” (perhaps a little braggadocio?) to survive and thrive in the world’s second-largest and second-most-populous continent. But I have to admit that in doing so, I’ve probably helped perpetuate the cliché of Africa as “the Dark Continent,” where peril lurks everywhere.

Yet if there was one takeaway from a recent session by Melissa Cook, CFA, on investing in Africa at the 60th Financial Analysts Seminar, it was that investors need to pushback against those who say “Africa is too risky.”

“It is not a story of death and despair as portrayed in the media (‘if it bleeds, it leads’),” said Cook, founder and managing director of African Sunrise Partners and a member of the President’s Advisory Council on Doing Business in Africa. “Africa’s good stories tend not to get any coverage.”

Investors need to develop a new frame of reference for Africa, she added, as the continent is comprised of many countries and opportunities. In fact, there are 54 separate countries, each with its own story, and yet “too many people still think it is one country,” Cook said. “When people talk about Africa, you have really got to start drilling down a little bit more into themes and regions and countries.”

Cook’s comments in Chicago came just days ahead of a summit of entrepreneurs in Nairobi where US President Barack Obama also talked up the merits of the continent.

And with good reason: one of the aims of Obama’s Africa visit was to boost American business and trade across the continent. (Africa is a fertile battleground for the world’s economic powerhouses: In 2009, according to Reuters, China overtook the United States as the continent’s biggest trade partner. China’s economic ties with Africa have skyrocketed in recent years, with two-way trade in 2013 — the last year for which figures were available — hitting a record $200 billion, mainly in Chinese imports of African oil, copper and other raw materials, the AP reports. US trade with Africa, meanwhile, fell to $85 billion in 2013.)

Africa is on the move!” Obama said at the Global Entrepreneurship Summit in Nairobi, Kenya. “Africa is one of the fastest-growing regions in the world, people are being lifted out of poverty, incomes are up, the middle class is growing, and young people like you are harnessing technology to change the way Africa is doing business.”

Donald Gips, co-chair of the Africa Business Initiative at the US Chamber of Commerce, told the Financial Times that “major American companies and funds are realizing that the opportunities in Africa are significant — particularly given growth rates that are shaping the continent. These are largely new markets for the US and the visit [from Mr. Obama] is a very big step: US business will follow in the wake of it.”

Whether or not US business interests will follow remains to be seen. But Cook’s message to the FAS delegates was clear: As an investor, you should do the research and formulate a deliberate strategy as the continent is too important to ignore.

“Africa matters and will drive global growth for decades,” she said. “It is the battleground for China-US competition in an awful lot of really important sectors and is a new source of earnings and returns for companies that can get the right positioning.”

In Africa, demand is greater than the supply for everything, and someone is filling that supply, she noted.

“The competition is already fierce. You go to these markets and it’s not like people are sitting around saying: ‘You know, I wish an American electrical equipment company would come over here and sell us some light switches.’ They are finding light switches from somebody and it isn’t us,” she said.

Cook acknowledged that Africa is “not the easiest place to go” as an investor, but said there was too much of an attitude of “we can wait,” or “the markets are too small.” By the time companies try to get there, it’s going to be too late, Cook said.

“Making accidental [investment] decisions based on no knowledge is a very risky approach, so companies that say, ‘Africa is too risky,’ well, if you make decisions on not knowing anything you are actually taking a much bigger risk than if you go and do the work and understand it.”

Consider the demographics:

  • More than 1.2 billion people and growing at more than 2% a year
  • 43% are under the age of 15
  • Rising education levels and many people who are tech-savvy
  • Voters are starting to hold politicians accountable: Deliver or be voted out! (Nigeria’s recent presidential election and smooth transition of the reins of power is a good example.)

In brief, why Africa, why now?

  1. Improving governance is one of the biggest changes. Nigeria’s election, Cook said, shows what happens “when voters have skin in the game.”
  2. Urbanization and the rise of a middle class. “You have lots of people moving into the cities, but the urban planning and infrastructure has not kept up. So that’s an area where I think a lot of governments and private sector companies are going to start putting money to work.” (Note that some foreign companies are deciding that Africa’s middle class is not the large, dynamic market they had hoped for. Nestlé, the biggest food and drinks company, for example, recently said it was cutting 15% of its workforce across 21 African countries because it had overestimated the rise of the middle class.)
  3. Infrastructure upgrades are happening and the Chinese have had a lot to do with this. “The Chinese construction companies need new markets because the growth at home is not quite as strong as it used to be.”
  4. Agriculture as a business is a very big deal. “About 70% of Africans earn their living from agriculture and most of them are barely at the subsistence level,” Cook said. “If they have a good year, they have extra produce or seeds to sell, but they are selling at the same time as everybody else and get a poor price. So we are starting to see much more for-profit-oriented investment. This is a critical underpinning of the long-term middle class consumer story.”
  5. Technology leapfrog. Mobile phone usage is exploding in Africa. It’s not about copper wire phone lines; it’s now all about fiber and wireless broadband networks.
  6. Financial inclusion: Mobile money is one way this is happening (for example, in Kenya).
  7. Globalization: It’s the end of Africa’s isolation from world markets.

That’s not to say there aren’t risks, including:

  • Capital flows in/out of illiquid markets;
  • Possible increase in political instability;
  • Currency volatility;
  • Commodity price shocks (e.g., the China slowdown);
  • Climate change and its effect on water, agriculture;
  • Disease as a drag on productivity — malaria being the biggest one.

In Cook’s view, however, the biggest risk is not being invested in Africa in the first place.

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Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

Photo credit: ©

About the Author(s)
Lauren Foster

Lauren Foster was a content director on the professional learning team at CFA Institute and host of the Take 15 Podcast. She is the former managing editor of Enterprising Investor and co-lead of CFA Institute’s Women in Investment Management initiative. Lauren spent nearly a decade on staff at the Financial Times as a reporter and editor based in the New York bureau, followed by freelance writing for Barron’s and the FT. Lauren holds a BA in political science from the University of Cape Town, and an MS in journalism from Columbia University.

5 thoughts on “Africa Rising: Now Is the Time to Invest in the World’s Fastest-Growing Continent”

  1. Alex says:

    There are a lot of preferences fo investors in Africa. According to The Globe and Mail portal, it is projected that investments in shopping centers, office buildings and industrial complexes of these countries benefit at least 20 % per annum of net income. That is what attracts the global investors expecting large income in the long run. Hermes-Sojitz international foundation is an investor of the construction of 65-storey skyscraper and several shopping centers with over 100 thousand sq. m. space each in West Africa. The total investment volume of the projects implementation in Africa is $ 3 billion until 2017.

  2. Nico van Staalduinen says:

    It’s easy to do business in Africa !
    I agree partly with the writer, and disagree on other parts.
    I don’t pretend to be a General Africa specialist because Africa is huge, fractured and has many different cultures, so yes there is 1 Africa geographically but there are many different Africans and African cultures who almost all need a different business approach.
    My comments could be useful in other African countries but are based on my deep involvement in just one African country; Ghana.
    My opinion in general is; Study the country, the culture and the people first. Start small business(es) first and learn how it is to deal with the people and their habits. Check where this behavior fits in with your personal background and behavior and find out what your strong points are and which ones you can use in your new environment.
    Also limit yourself, don’t think everything you know, have seen and done before can easily be implemented in your new country, some technology or working ways, will come but it can be to early to adapt them. Get involved with the people, don’t turn around in your expatriate circles or with local workers, et involved with the local “upper ten” and listen to their take on society.
    If you only behave like a foreigner in somebody’s country, you will constantly end paying foreigners prices for all services you need, weakening your own competitive pricing and actually weakening the competitive position of your host country at the same time, but often local people don’t see it like that.
    If you follow these comments doing business in Africa will be easy.
    My position on the mentioned subjects in Ghana;
    Urbanisation and the rise of the middle class. Nestle’s and many other companies mistake is/was that the middle class is not a middle class as we know it in Europe, the real position of the middle class is just under the top class, but the majority of them still have (through their only recent rise) their poor and often village background, spending pattern and behavior, that’s my warning of being too early !
    Infrastructure indeed Africa needs to upgrade a lot of infrastructure, but EU and US should study more carefully why the Chinese are taking big bites out of the cake, to me the only reason seems to be the cheap price, Chinese are much cheaper than Europeans or Americans, but I also think Africans are cheaper than Chinese, so why not train the Africans at least as good as the Chinese and use them to compete against the Chinese construction companies Win – Win for all of us, but the Chinese.
    Agriculture as a business is a very big deal. I agree that agriculture is big but the high participation grade of Africans in agriculture makes the sector week. In the US and EU, farmers and people indirect involved in farming make up between 2 – 5% of our populations and yet we export more than most others. We need to mechanize farming in Africa rapidly because as soon as labor cost rise we price ourselves out of the market, we need large scale and competitive farming and need to tell farmer communities honestly that participation in farming will decline and that we need modern farming instead on larger farms with less people, examples are the last 100 years in EU and US when farmers participation dropped from over 50% to 2%.
    Technology leapfrog. Be careful, you can do good things with that fact but bad things can also happen, don’t forget most users jumped from writing letters or verbal passing of news and events to mobile phone use. They missed the “evolution” phone use from post office to your home, from landline fax and from just calling to twitter. At this moment the majority of people, sometimes buying modern and expensive phones with tens of apps, only use them for calling and maybe a taking a picture because that is all they understand.
    Financial inclusion: Mobile money is a way to transfer money for poor people to less poor people only. As soon as we really develop this will disappear just as fast as it came up, not only because the there will be new possibilities but also because the senders will get tired of constant pushing of the receivers.
    Globalization: Is the end of African countries who don’t adapt. At the moment popular politicians are asking and applauded for, popular past-colonial steps to be taken, asking and shouting things like’ Africa is for Africans, local content bills, no export of raw materials, no or high investments minimums for foeigners, pushing for local co-ownership for investors etc. Although I agree that there is a bag log of African participation in the world market I do believe that African countries need to globalize to reach that goal and not to “lock” their economies.

  3. Who Cares says:

    Investing in Africa? With no information or recommendations regarding mutual funds or ETFs? Or even which countries?

    How might a person who’s never been to Africa “invest in Africa”? Perhaps I should pick a country at random, move there with my capital, and start a business? I doubt that I could imagine a more foolish course of action.

    This article needs more information if it is to be useful.

    1. Umulinga Karangwa says:

      This is very true. The article is very “general” and does not offer much actionable info. We are many CFAs based in Africa, some of us with several decades of experience supporting foreign investors getting exposure to the continent through mutal funds, ETFs, private equity or direct investments. It would make more sense to get contributions from the ground.

  4. Sosa says:

    In making direct investment in Africa (as opposed to “virtual” investment in securities), it is imperative that foreign capital partners with knowledgeable and well connected locals.

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