The headlines on Africa have been filled with challenging news for a continent whose narrative was on the rise. They report that across Africa economic growth is decreasing, commodity prices are down and China's demand for African resources is declining. That borrowing costs are up and that Africa's growing "middle" class has all but vanished; that investment risks are increasing and anticipated returns are down.
But sustained economic development and growth isn't an overnight phenomenon - it is built over time upon a set of fundamentals. Long-term opportunities abound in the Sub-Saharan Africa, but they require patient capital, early stage investments and multiple paths for investors to realize their returns. Trend lines, as opposed to headlines, drive outcomes - and they continue to point toward broad and deep opportunities in Africa.
In many countries across Sub-Saharan Africa, several forces are combining to produce opportunity over the coming decade:
- Growing demand from a consumer class in urban centers
- A stronger ability to produce competitive goods
- Peaceful political transitions and more effective economic development policies
Investors who leverage these trends will prosper - as will a region that continues to be projected to be the second fastest growing market in the world over the coming five years.
Growing demand from the consumer class
With a population that is growing to 1.7 billion by 2030, there continues to be an expanding demand for fast-moving consumer goods in Africa. The ten largest consumer-facing multinationals in Sub-Saharan Africa, including Shoprite, MTN, Unilever, Nestle, Vodacom and Samsung, as a group now exceed annual revenues of €50 billion as a result of double-digit annual growth over the past six years.
Urbanization and changing spending patterns are helping to fuel this success. More affluent consumers are moving to cities, allowing distribution channels to become centralized and cost-effective. Consumers also are shifting their consumption to different products -- mobile technology offers leap-frogging opportunities and is creating new products and markets monthly. Venture capital for African technology startups is projected to exceed $600 million annually by 2018.
We lack consistent data for the Sub-Saharan region when it comes to measuring an aggregate "middle" class -- a term that may have more meaning outside than inside the Continent. But investors don't invest in an abstract basket of countries, any more than international companies sell to a mythical "average consumer." And, in many countries, the data reflect strong ongoing and growing consumer class demand.
Nigeria, Cote D'Ivoire, Ghana, Kenya and Tanzania have an unmet demand for more than 44 million units of housing. Today, existing developers supply less than 200,000 homes annually, with the housing deficit widening each year. In Ghana's capital Accra, at least 1.6 million more people now live in households with a refrigerator and a television than did in 2006 - gateway assets for increasing consumption.
Sub-Saharan African consumers have an enormous unmet demand for power, especially in major cities like Lagos, Nairobi and Dar es Salaam. Deficiencies cause outages that sometimes last more than 24 hours. Businesses offering power, including those selling pay-as-you-go solar panels, fare well and attract significant investment, particularly as consumers weigh them against purchases of candles, kerosene and charcoal.
A stronger ability to produce competitive goods
The available country data sheds light not only on the ability and willingness of Africa's emerging consumer class to buy new products, but also on the Continent's evolving competitive advantage in making consumer products.
Workers in Ghana, Tanzania, Ethiopia and across Africa are more competitive than ever globally, as manufacturing costs have risen in China and new long-term trade policies are opening more opportunities to African exports. West Africa's regional economic block, for example, where manufacturing remains nascent, is increasingly integrated and enjoys one of the largest, youngest and fastest-growing labor markets in the world.
While China regularly dominates headlines about Sub-Saharan Africa, fewer than a quarter of the region's 48 countries sell more than 20% of their exports to China. And despite the headlines, China is continuing to double up on its investments, pledging $60 billion in aid and loans over the next three years to the Continent, with a focus on infrastructure and workforce development. This investment may further bolster Chinese firms' appetite to shift manufacturing to the Continent, generating new and more sustainable sources of growth as Africa's raw material exports to China decline.
More effective economic development policies
As trend line watchers know, Sub-Saharan Africa's major markets - including Kenya, Ethiopia and Cote D'Ivoire - have become more politically stable, joining Ghana, Tanzania, and Senegal, making their markets more appealing for investments in capital intensive fixed assets like power plants, natural gas and oil platforms and factories. Their Central Banks have become more adept in managing in a volatile global market environment, as reflected by the Fed's rate hike barely registering in the exchange rates of Africa's leading economies, contrary to the expectation of many analysts.
And several governments across Sub-Saharan Africa are making a decisive push to modernize and diversify their economies by building on their competitive labor advantages and planning for more value-added processing and manufacturing. This effort has been most successful in countries that lack strategic seaports and vast minerals, like Ethiopia, Lesotho and Rwanda. At a recent textile trade show in Addis Ababa, manufacturers from twenty-five countries discussed orders, reviewed plans for new factories and sought to convince their suppliers to co-locate and create the types of industrial clusters that lifted Asian productivity half a world away.
Economists in Sub-Saharan African governments are focused on better leveraging Sub-Saharan Africa's abundant local resources, from cocoa and cotton to gold, bauxite, rubber and fruits to create vertically integrated supply chains that serve regional and global markets. Too many of the goods their consumers enjoy are currently imported, increasing trade deficits and currency volatility, and frustrating the traditionally virtuous cycle in which growing consumption goes hand-in-hand with expanded and more sophisticated local production. Leaders are now more actively pursuing these opportunities for their own markets, so the economic transformation on the Continent is only now beginning in earnest.
This holds promise for investors seeking long-term value creation, given that so many Sub-Saharan economies are undervalued relative to their potential with efficiency gains possible in energy, logistics, agriculture, labor and capital markets. And, the trend line data suggests that the odds of realizing this promise are only improving.
Investors in Sub-Saharan Africa watch the headlines - but often make decisions based on trend lines. Those indicators - which matter for the future - continue to point to investment opportunities for those willing to take the long view.
Cheryl Mills is Chief Executive Officer of the BlackIvy Group. Jean-Louis Warnholz is Managing Director of the BlackIvy Group.