Why Investors Need to Look at Africa
Source: Whiskey and Gunpowder, Chris Mayer (8/30/10)
"A long resource boom in Africa could be in the cards."
These changes began as Africa opened up its markets. Generally speaking, governments have lowered corporate taxes, beefed up their legal systems, and loosened up barriers to trade. The average inflation rate dropped from 22% in the 1990s, to 8% after 2000, while foreign debts dropped by one quarter. Budget deficits fell by two-thirds.
This is like laying a seedbed for investors to thrive. Foreign investment in Africa is up sevenfold since 2000, to $9 billion. Africa's economy is now about as big as Brazil's or Russia's. The continent is young, urbanizing and growing. By 2050, one out of every five people on the planet will hail from Africa.
Africans increasingly join the world's consumers. According to McKinsey & Co., in the next few years, the number of households earning more than $5,000 should top 100 million. Already, Africa has more middle-class households — defined as having $20,000 in annual income — than India, though India has more people.
One recent study found that the average return on equity for African companies was two-thirds higher than for comparable companies operating in China, India, Indonesia and Vietnam. Another survey of U.S. companies showed that they enjoyed their best returns when they invested in Africa compared to any other region.
No doubt an exciting part of the puzzle that is Africa is the long list of commodities in which Africa is amazingly rich. For instance, about 40% of the world's gold is in Africa. And this is just what we know about. For the most part, Africa is unexplored.
In short, a long resource boom in Africa could be in the cards.