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.

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".

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.

Recommended

I wish I knew what an emerging market was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what an emerging market was, but I’m too embarrassed to ask

This week's “too embarrassed to ask” explains what emerging markets are, and why you might want to invest in them.
9 Sep 2020
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
Why investors should beware of India’s surging stockmarket
Emerging markets

Why investors should beware of India’s surging stockmarket

The BSE Sensex benchmark index has soared by 90% since March, largely driven by foreign investors. But India's bull market is very vulnerable.
15 Jan 2021
How to invest in Africa as it takes its place in the post-pandemic sun
Emerging markets

How to invest in Africa as it takes its place in the post-pandemic sun

The African Continental Free Trade Agreement has come into force. Favourable demographics, improving governance and a growing technology sector also b…
14 Jan 2021

Most Popular

Bitcoin: fool’s gold or the new gold?
Bitcoin

Bitcoin: fool’s gold or the new gold?

With bitcoin hitting new highs last week, and close to becoming a mainstream investment, is it really gold for the 21st century?
15 Jan 2021
The MoneyWeek Podcast: bitcoin special
Bitcoin

The MoneyWeek Podcast: bitcoin special

Merryn talks to bitcoin experts Dominic Frisby and Charlie Morris to get the lowdown on the cryptocurrency to find out why it's such a huge global phe…
15 Jan 2021
Leasehold reforms promise the end of a nightmare for many homeowners
Property

Leasehold reforms promise the end of a nightmare for many homeowners

Horror stories about unscrupulous landlords profiting from a legal relic of the feudal era are about to get a happy ending, says Simon Wilson.
16 Jan 2021
Free 6 issue trial then continue to