3 Markets Stirring in Africa
04/25/2011 2:53 pm EST
These three countries exemplify the continent’s encouraging recent growth and vast potential, writes Mark Mobius, executive chairman of Templeton Emerging Markets Group.
Those who are optimistic about Africa say that, after many years of colonialism, it is beginning to demonstrate its potential.
The continent does have its detractors, who say that while it may have been free of colonial rule for 60 years, the continent continues to battle poverty, corruption, AIDS, and armed conflict.
However, while Africa does have challenges, I am encouraged by another side of Africa that is gradually emerging with the development of capital markets, consumerism, and technology.
I believe the opportunities for the development of Africa’s markets are appealing primarily because of the strong growth numbers now emerging out of the continent. Africa is expected to grow more than 7% annually in the next 20 years, due to an improving investment environment, better economic management, and China’s rising demand for Africa’s resources.
More than 100 African companies have revenues in excess of $1 billion. Africa also has impressive stores of resources, not only in minerals but also in food—60% of the world’s uncultivated arable land is found in Africa.
As global demand for hard and soft commodities continues to grow, I believe Africa is in an enviable position with its vast natural resources.
The potential for long-term growth in consumer-related areas is also very attractive, with around 1 billion inhabitants on the African continent. These are people, just like many others all over the world, with aspirations to own their own homes and buy possessions such as cars, refrigerators, washing machines and the like.
Nigeria: A Red-Hot Economy with Potential
Within Africa, Nigeria is one of the frontier markets that I like. The country has a population of about 155 million people. It is rich in oil and gas reserves and raw materials such as iron ore, coal, and bauxite. In addition, its climate and large areas of fertile land lend themselves favorably to agriculture.
Nigeria’s economy has benefited from strong commodity prices; it is estimated to have grown 7.4% in 2010, and is forecast to grow at the same pace in 2011.
The highly anticipated Nigerian presidential election may be seen by many as a measure of the country’s progress and stability, despite the clashes and unrest running up to the election.
Our local sources remain confident about the elections overall, and are not expecting any significant derailing event. We share this sentiment for the most part, given the current positive economic environment—fueled by high oil prices—as well as more tangible reforms in the country.
Moreover, banks in Nigeria are particularly interesting. In our view, the government’s recent bailout of banks has made the nation’s bank stocks cheap, creating some very interesting investment opportunities.
NEXT: Also Consider Ghana and Kenya|pagebreak|
Also Consider Ghana and Kenya
Ghana was the first sub-Saharan country in colonial Africa to gain independence. Although it endured an extended period of military rule, a new constitution and multi-party politics were introduced in 1992. Currently, Ghana is seen by many as one of the most politically stable democracies in sub-Saharan Africa.
We are excited about the prospects for consumer-related sectors in this market, given its relatively young and dynamic population of more than 20 million.
The country is also rich in natural resources such as oil and gold. Oil production in the offshore Jubilee field commenced in December 2010, and is likely to make a significant contribution to the country’s economic growth.
Of course, related investment in infrastructure is also likely to require financing, so we are looking closely at the financial sector as well.
The Kenyan economy appears to be doing well at the moment. The post-election violence in late 2007 and early 2008 took many by surprise, but it culminated in the establishment of a coalition government and the adoption of a new constitution in 2010, creating a solid foundation for future stability and growth.
Kenya’s position on the east coast of Africa allows it to act as a hub for trade and investment flows from the east into the rest of the continent. Exports, predominantly tea and horticultural products, have recovered strongly, and the tourism sector is also seeing a strong rebound.
[The only diversified African ETF currently available on the US exchanges if the Market Vectors Africa Index (AFK), which devotes 16% of assets to Nigerian stocks and another 5% to offshore companies with businesses in the country. South Africa accounts for 29% of the holdings and Egypt for 20%. In contrast, Kenya accounts for just 1.5% of the portfolio and Ghana is hardly represented—Editor.]