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An Analysis of the Enormous Growth Opportunities in African Economy

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One of the biggest business stories of this year has been the recognition by investors and the Obama administration that the African continent is one of the best places on the globe to bring your investment dollars.

That’s the message of a long analysis of the African market on the CNNMoney site yesterday, saying that it would be a big mistake for investors to be scared off from Africa because of a fear of government instability.

“One of the main knocks against investing in Africa is the risk of political instability and coup d’etats, but investors need to realize that Africa is a big continent with 54 countries,” said Peter Thoms, founder and portfolio manager of Africa Capital Group, a Coronado, Calif.-based investment firm that manages Africa-focused portfolios for U.S.-based investors.. “What happens on the ground in Mali doesn’t affect South Africa much because all the different countries still have very domestic economies that aren’t too interrelated yet. That gives you built-in diversification.”

The CNN piece looks at the investment opportunities in Africa in a number of different market sectors, such as hottest stocks, top funds, mobile market and bonds.

As the story points out, while the global economy has slowed in recent months, growth in Africa has not—the World Bank predicts the continent could be on “the brink of an economic takeoff, much like China was 30 years ago, and India 20 years ago.”

Acknowledging these growth opportunities, President Obama—whose father was a native of Kenya—sent his acting Commerce Secretary Rebecca Blank to Africa to announce his administration’s new “Doing Business in Africa” campaign, which will feature two-way trade missions and shows, training American development leaders on working in Africa and holding a series of Africa Global Business Summits in the U.S. during 2013.

Many observers have interpreted Blank’s Africa trip—the first to sub-Saharan Africa made by a U.S. Commerce Secretary in a decade—of the Obama administration’s commitment to greater engagement in Africa during his second term.

At an event in Johannesburg to launch the campaign, Blank said President Obama believes Africa can be “the world’s next major economic success story.”

“He’s absolutely right. Sub-Saharan Africa is home to six of the 10 fastest-growing markets in the world,” she said in her remarks. “Economic growth in this region is predicted to be strong–between 5 and 6 percent–in coming years. And–most important–millions of Africans are finding a path from poverty to greater security, opportunity, and prosperity.”

Blank said, “For decades, people around the world have talked about doing business in Africa. But today, it’s real. It’s happening. And Africa is rising as a result.”

While most analyses of Africa’s possibilities have rightly focused on Africa’s natural resources, an even bigger factor in its growth is the rising consumer class.

“The consumer demand in Africa is enormous,” said Larry Seruma, managing principal at Nile Capital Management and manager of the Nile Pan Africa Fund, the only U.S. mutual fund to focus exclusively on the continent of Africa.

Household consumption is now higher in Africa than in India or Russia, according to the McKinsey Global Institute, with expectations that it will only continue to surge. The number of African households with discretionary income is expected to jump by more than 50 percent to almost 130 million by 2020.

“Nigeria has over 160 million people, but only 20 million operate bank accounts,” said Seruma. “As more of the population starts banking, we’ll see a lot of growth in that sector: more deposits, more business lending, more mortgage loans. There is so much more growth to go.”

In the mobile sector, Africa is the fasting growing market in the word, with subscriptions growing nearly 20 percent annually. With a rate of mobile penetration at less than 70 percent—far below the world average of 91—and the lowest regional rate, according to London research firm Informa Telecoms & Media, the future is only going to get brighter in this sector.

“The rate of mobile growth in Africa is unheard of,” said Peter Thoms.


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