Why Now? Here are some of the reasons to invest in Africa today!
Ground-floor opportunity: Many investors have already missed a "ground-floor opportunity" in Africa. For the decade ending Dec. 31, 2009, an African composite index made up of eight countries, including South Africa, Nigeria, and Egypt, returned about 14 percent annualized. South Africa alone returned an average of 13 percent per year over that period. Compare that with the MSCI Emerging Markets Index, which returned about 7 percent annualized, or the S&P 500, which lost about 3 percent over the same time period.
Strong growth expected: According to projections from the World Bank, 9 of the 15 countries in the world with the highest rate of five-year economic growth are in Africa. Africa is likely to grow by 4.7 percent over the next five years. Economists expect much slower growth in places like the United States and U.K. over the next few years. It's a pretty huge growth differential.
Profitable companies: A recent study shows that from 2002 to 2007, the average annual return on capital of African companies was 65 % to 70% higher than that of comparable companies in China, India, Indonesia, and Vietnam. That means the African companies were more profitable.
Demand for commodities: As it industrializes, Africa is going to be demanding more and more of commodities. For instance, 10% of the world's oil reserves and 40% of the world's proven gold reserves are found in Africa.
Increasingly less violent: Most African countries now have functioning democracies which is a very different picture from what it was 20 years ago, and that has increased investment.
China's involvement in the region: Many Chinese companies—some of which are backed by the government—have made significant investments in Africa. They are really taking a long-term view about investing in Africa. The governments of countries like China have realized that they're going to need resources from the African continent to fund their growth and consumption in the future.
Infrastructure spending: Companies are no longer coming to Africa solely to extract resources. They're beginning to stay and help make important infrastructure improvements in the continent. "The old story of investment in Africa was 'let us get the natural resources out of the ground and immediately ship it out”. Now it's changing. Not only do they go to Africa and make an investment in Africa, but they're also making the additional development projects
Low debt: concerns about sovereign debt—the debt that governments owe—has been making headlines in some developed countries when many African countries don't have the same worries. Countries experiencing high debt will have to keep low interest rates which may in turn lead many investors to look to different regions of the world for higher yield. Thus, the capital being pushed out of the developed markets is going to benefit Africa. Growing investment from abroad: Africa is ahead of Brazil, India, and Russia. It's second only to China.
Young demographics. Compared with other regions of the world, Africa has a much younger median age, which means African governments aren't as burdened by elderly populations and pension plans. It also means that Africa has a young, vibrant workforce.
