Investors turn to Africa as the final frontier

With so much attention on emerging markets in recent years and many approaching developed status, investors are seeking a new generation of developing countries.

Africa certainly fits that bill – particularly the sub-Saharan area – and advocates have branded it the final investment frontier.

Among specialist investors, Charlemagne’s Sharat Dua, who runs the group’s Magna Africa fund, says the continent is at an exciting stage for investors, with strong fundamentals largely ignored by the Western world.

‘Such antipathy is clear from market behaviour. Despite rapid growth in economies, urbanisation and working populations, African equities were among the first to sell off as risk appetite evaporated in the face of eurozone debt problems,’ he says.

According to Dua, the balance of Western reporting on Africa is usually skewed to the negative. Of 21 countries that had elections in 2011, including a peaceful transfer of power in Zambia, few that went smoothly received widespread attention, he says.

Africa is not a homogenous region, and has countries at different stages of economic and political development. But Dua says it is possible to contrast its many growth stories with sluggish prospects in the West. ‘Many so-called developed economies are structurally weak, with ageing populations deleveraging after years of living beyond their means,’
Dua adds.

‘In Africa, there are already around 60 million middle class households – with an annual income above $3,000 (£1,800) – and this is expected to reach 100 million by 2015. Its working population is also predicted to be the largest in the world in the next 20 years, with a current median age of 20 against 40 in Europe and 30 even in Asia.’

Recent analysis from the World Bank puts Africa at a similar stage to India 20 years ago, highlighting the continent as on the brink of economic take-off.

‘Critics see the continent as a purely a commodity wealth story and while this is a key theme, the more important factor is how it trickles down into the wider economies,’ says Dua. ‘Politics is the one area where change is not so rapid but things are improving. It is vital that governments continue to use commodity wealth for infrastructure and creating jobs, which will bring more people into the real economy as consumers.’