Africa, the emerging market story of the next decade ?

According to Mark Mobius, Africa could represent a tremendous opportunity for investors in the next few years. The continent is well known for its wealth of natural resources, much of it barely developed, which includes oil and gas and a variety of metals and minerals, as well as huge tracts of agricultural land

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These resources have attracted global investors, most notably from emerging market countries such as China, India and Brazil. These investors have been seeking raw materials for their own economic development and new markets for their industries. In return, African countries have been receiving vitally needed infrastructure such as transport links, power stations, schools and hospitals, which is bringing into play another great African resource—a large and youthful population. More than a billion strong with a median age of just 20,  [1]we believe the population’s prospects and productivity are being transformed by education, mobility and access to capital resources

Over 10 years to 2010, six of the world’s fastest-growing economies were in Africa. Over the next five years, International Monetary Fund (IMF) forecasts predict gross domestic product (GDP) growth in excess of 5% for Sub-Saharan Africa as a whole.
Mark Mobius

This trend has already had a positive effect. Over 10 years to 2010, six of the world’s fastest-growing economies were in Africa [2]. Over the next five years, International Monetary Fund (IMF) forecasts predict gross domestic product (GDP) growth in excess of 5% for Sub-Saharan Africa as a whole [3]. In fact, individual countries such as Nigeria, Ghana and Kenya are projected to grow even faster. Growth on this scale is creating burgeoning middle-class populations and dynamic domestic economies that can provide opportunities for consumer companies as well as a degree of insulation from problems in developed markets.

While the investment opportunity is large, in our view, problems of access persist. Outside South Africa, equity markets are relatively smaller and illiquid and many key assets remain in state and private hands and are usually unquoted.
Mark Mobius

Regulation of shareholder rights is often incomplete. In a number of countries, political instability also represents a threat. However, this situation can and is changing, as in Nigeria, where for example, banking reform has set off a wave of consolidation creating well-managed and well-financed banks at what we believe are attractive valuations. Elsewhere, we believe privatizations and stock market quotes for state enterprises could transform stock market liquidity and expose the businesses to more-modern management practices

South Africa stands out among its African peers with a large, wide, deep and liquid equity market. Moreover, a number of South African companies provide exposure to markets further north that might be difficult to secure locally. We have found particularly attractive opportunities in South Africa’s mining and retail sectors.

Nigeria is the second-biggest sub-Saharan African country, with plentiful natural resources but at present held back by a critical lack of infrastructure, notably power. The country’s reformed banking system has provided an attractive means to invest in a fast-growing domestic economy, in our view, and we will look to invest in other areas as regulatory reform proceeds.

Kenya, with a new constitution following serious political disturbances in 2007, is attractive to us both for its significant natural assets, notably in agriculture, and as an entry point for much of the investment into Africa. A well-regulated telecommunications market provides opportunities to invest in mobile telephony, in our view, while retail and banking investments are also available.

Egypt has a large, youthful, relatively well-educated population and a diverse economy well represented on its stock market. The country has been through wrenching political turmoil with accompanying economic dislocation, but we believe appealing longer-term prospects for a number of companies have become attractively valued.

Ghana is currently enjoying high GDP growth even by African standards, estimated at 13.5% in 2011 and predicted to be over 7% in 2012 [4]. The market is relatively small, with fewer than 30 quoted securities, but we believe it could be transformed should privatization take hold. The main investment opportunities, in our view, are banks and telecommunications companies

Beyond this group, we believe many other African countries have great long-term potential, while intraregional links are creating some pan-African businesses.
Mark Mobius

In short, with tremendous potential growth becoming increasingly available to investors, we believe that Africa could be the emerging market story of the next decade

Mark Mobius , March 2012

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[1] Source: United Nations Department of Economic and Social Affairs Population Division, “World Population Prospects: The 2010 Revision,” April 2011

[2] Source: The Economist; International Monetary Fund

[3] Source: IMF World Economic Outlook, September 2011.

[4] Source: IMF Word Economic Outlook, September 2011

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