Advertisement

It’s time to rediscover the Africa story

The Africa story has gone off the boil in recent years, says Andrew Van Sickle. It's time investors changed that.

813-Africa-1200
Smartphones should galvanise growth in Africa

A few years ago, the financial press was full of talk about Africa's investment potential. But the story has gone off the boil amid the downturn in commodity prices and an especially disappointing performance by continental heavyweight South Africa in the past few years. Between 2010 and 2015, Africa's GDP expanded by an annual average of 3.3%, compared with 5.4% between 2000 and2010.

Advertisement - Article continues below

However, the GDP statistics tell a "misleadingly negative story", says a new report by the McKinsey Global Institute. The slowdown stemmed largely from the northern African states, whose performance was dented by the Arab Spring and the slide in the oil exporters' economies. In the rest of the continent, average GDP growth accelerated slightly in 2010-2015. The "overall outlook remains promising".

Africa is the region with the fastest rate of urbanisation in the world. Over the next ten years, another 187 million Africans will live in cities equivalent to ten more Cairos, according to McKinsey. Productivity in cities is always higher than in the countryside, which bodes well for income growth and consumption. Another factor in Africa's favour is its young population and growing labour force. The latter is expected to number 1.1 billion by 2034. The spread of the internet and smartphones should galvanise growth; electronic payments "are sweeping cross the region and changing the business landscape".

Advertisement - Article continues below

Still, as David Pilling points out in the Financial Times, there are no guarantees. The "sweet spot" that saw Asia take off consisted of an expanding workforce and fewer children; "stubbornly high fertility" may prevent Africa making this demographic transition. Meanwhile, if basic infrastructure isn't provided, technology may prove more of "a scrappy fix than a productivity-enhancing miracle". Yet you get the feeling that "something is going on". It may be time for global investors to rediscover the Africa story.

And other news...

Debt bubble grows and grows

US stocks: out of puff?

The operating profit margin of America's non-financial companies has slid from 25% to almost 22% in the past two years. And the tailwind from buybacks is easing. They were down by a fifth year-on-year in the first seven months of 2016, as James Saft points out on Reuters.com. Earnings have declined over the past five quarters, so there is less cash in the kitty to scoop up shares. Many companies have borrowed money to buy their own shares, but corporate debt is at record levels, so there seems limited scope for this to continue.

Still, all this doesn't mean overpriced stocks will suddenly collapse. With interest rates at near-record lows, providing ample liquidity, the most important tailwind of all in recent years is still blowing strongly.

Advertisement
Advertisement

Recommended

Bullish investors return to emerging markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Beware the hidden risks when investing in emerging markets
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019
How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Emerging markets: buy when the news is bad
Emerging markets

Emerging markets: buy when the news is bad

Emerging markets are being squeezed by local turmoil and by more general factors. But bad news can spell opportunity for investors.
5 Nov 2019

Most Popular

OBR: UK house prices could fall by 12% next year
House prices

OBR: UK house prices could fall by 12% next year

The Office for Budget Responsibility says UK house prices could fall by as much as 12% next year. John Stepek looks at how likely that is.
14 Jul 2020
Three ideas for Lloyds Bank's new boss
UK stockmarkets

Three ideas for Lloyds Bank's new boss

The Black Horse needs whipping into shape. A change at the top provides a great opportunity, says Matthew Lynn.
12 Jul 2020
We’re spending more than at any time since World War II – how will we pay it back?
UK Economy

We’re spending more than at any time since World War II – how will we pay it back?

With the UK spending vast sums on stimulus measures, this year’s budget deficit will be greater than at any time since World War II. The big question,…
14 Jul 2020