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African Investment – Why It is Attractive

 The African investment landscape is looking brighter all the time.  Africa Mentor continues to monitor the global press and financial institutions for stories that give our community the clearest picture of investment opportunities on the continent.  In this post, we bring you two important reports.

Important African Investment Interview

The first story comes from an interview UK investment firm Hargreaves Lansdown (HL)conducted with with Goldman Sach’s Katie Koch, Senior Portfolio Strategist, Katie Koch, Anthony Eaton, Senior Portfolio Strategist for JM Finn and HL’s own head of investment research, Mark Dampier.  The interview revealed some extremely important insights for individuals and companies considering African investments.

In the past couple of months several reports have come out by individual analysts down playing the opportunities in Africa.  All of them have hit on one issue – Africa’s productivity is lacking, especially in the area of manufacturing.   In the HL interview Anthony Eaton remarked, “Productivity has also been rising in Africa since 2000. Previously growth in Africa relied on population growth alone but now you are seeing growth in productivity on top of that.  This is all feeding through into rising consumption, which is the widest-margin story in Africa. Exporting commodities is a low-margin trade and gets them off the ground, but it’s when they start to consume internally that the story gets really interesting.”  Very positive news indeed.  Yet he goes further in stating, “Income has virtually doubled since 2000, and private consumption in Africa is already as big as it is in India and Russia, which are much more universally understood investment areas.”  Eaton went on to report that, “Most forecasts anticipate consumption in Africa will double again by 2020, which would put it at the same level as China in 2009.”

Eaton says that Western media warnings the African investment landscape is filled with insecurity is old and outdated news.  “In Africa today there are no large-scale wars at all. Most of the countries in Africa are democracies and most have had several elections by now, including DRC.”

Katie Koch singles out Nigeria as her current, prime pick for investment.  “Nigeria is one of them. It has 160 million people with a median age of 19, so it is incredibly attractive demographically. We think it’s one of the countries most likely to rank among the BRICs in terms of importance to the global economy in the future.”  She identifies consumer and infrastructure, particularly power generation, as sectors that will bring the greatest return.

Dampier pointed out that the current what is happening in Africa today, “you could have said in 18th and 19th century England and in America as well. It’s just a huge industrialization story – everything we take for granted in the West is what they want and are beginning to get.”

You can read the entire African investment interview at the Hargreaves Lansdown website.

China’s African Investment

China is a major player in Africa today and they plan to continue to be very active in government to government aid and private investment.  In a story appearing in today’s Global Times (dedicated to China news), Time to Take Africa’s Eco-concerns Seriously, Mark Kapchanga points out that China’s contribution to infrastructure build out in Africa is coming under some scrutiny by wildlife and human rights activists.  Despite the unfavorable attention, China will continue with its African investment.  The article points out that China’s involvement has already made a major difference.  “Massive repairs and expansions are ongoing. The roads have connected African nations, accelerating intra-African trade. This kind of trade stands to make the continent’s industries more competitive.”

China’s current, major investment in Africa is in electrical power production.  This is an investment that when completed will spur growth in the manufacturing and consumer sectors in many countries on the continent.   The Chinese power projects include a 1,250-megawatt plant in Sudan.  The Give III project in Ethiopia is is China’s largest African investment.  In Ghana they are building the Bui Dam which will answer some of this booming county’s need for a more stable electrical grid.

Read the entire story at the Global Times website.

For a comprehensive look at African investment opportunities download our Africa’s Business and Investment Outlook an overview 2012-2013.