Investment Opportunities in Africa

With news of so many companies seeking bailout from the government and the stock markets collapsing continually, the investor’s world-over can get skeptical about their decision to invest in a particular economy or in a particular market. With so many markets failing, investors have been looking on to those untouched and unexplored markets with high potential. In such a situation, Africa has highlighted itself as the next big market that promises unprecedented growth in the near future, where stock markets have been booming and investors have been focusing on sub-Saharan Africa in the recent times. Surprisingly, Africa has a market capitalization of over and above $100 billion and its stock markets are considerably larger when compared to what Russia and Central Europe were when they were opened to foreign investors in 1990s.Africa is favorably positioned to become the 2nd fastest growing region in the world, and according to the International Monetary Fund (IMF), economic growth across the 54 countries of the continent will hover around 6% in 2012.

Sub-Saharan Africa consists of nearly 48 countries with population of well over 800 million people; and this region does not include Middle East or Northern Africa. This population is nearly three times the population of United States and this is a great factor to make it a big market. However, South Africa is considered the most developed economy in this region, and accounts for nearly one-third of GDP of Sub-Saharan area. Number of stock markets in this area has multiplied with new stock markets in Ghana, Uganda, Zambia, Swaziland, Malawi, etc. Just to let you know the potential and growth of this area, the market capitalization of stock markets in Africa jumped from $113 billion to $245 billion from 1992 to 2002, which can be considered as outstanding by any standards. The region is experiencing tremendous growth in terms of penetration of mobile phones and development of banking systems. Furthermore, the region has noticed increased foreign investment along with loan disbursement in the last decade. In addition to all this, countries like Ghana, Botswana, Mozambique, Kenya, Tanzania, Nigeria, Zambia, and Uganda were ranked as "Emerging Markets" by International Monetary Fund.

Africa is ripe for a green revolution the continent is currently home to 60% of the world’s total uncultivated, arable land. There’s your opportunity. As the world’s population increases rapidly, global agricultural production must rise to feed these growing numbers. Much of that increased agricultural production will come from Africa. While the traditional obstacles to boosting agricultural output in Africa have been well documented, several African governments are making substantial and successful efforts in surmounting these shortcomings. As these barriers are overcome and agricultural output is increased, there’ll be a business opportunity for the manufacture and marketing of products such as fertilizers, pesticides and seeds as well as a demand for food processing services such as grain refining. Already, a growing number of private equity funds are springing up to finance agricultural production in Africa.

Several African countries have vast deposits of mineral resources that have been left largely unexploited, due to the financial incapacity to embark on capital-intensive mining projects. Africa has an array of mineral resources which include iron ore, coal, bauxite, gold, tin, lead and zinc which have been neglected because of the continents preoccupation with its massive oil deposits. Investing in infrastructure is also critical to Africa’s growth. While there have been significant improvements in the development and quality of infrastructure across the continent, there is still a clear-cut deficit. Needless to say, this shortfall has its consequences, including bottlenecks in the smooth running of trade and export activities; there are opportunities for private investors to partner with African governments in the development of under-performing infrastructures, such as investing in reliable power supply, water resources, roads and railway systems. Africa’s fast moving consumer goods sector shows potential. There is a huge and ever-growing opportunity for manufacturers and retailers of FMCGs like food, beverages, home care and personal care products. But speed is critical. Investors who can quickly step in and get a grip on the market will be the dominant players in the years to come.