Dateline: Krakow, Poland
Many in this field tend to focus on opportunities in emerging Asia, often along with Latin America and Eastern Europe. But one continent usually gets left out, and that’s Africa.
Smart investors are going behind the scenes and taking advantage of opportunities on the continent that really is the last frontier. In fact, Africa is viewed with such optimism by the Chinese that over 70% of their foreign direct investment is in African countries. Anyone who’s paid attention over the last couple of decades should know that it’s wise to pay attention to where the Chinese are going with their money.
Following China’s lead, countries like India, Turkey and Russia, along with much of the Western world are also stepping up their investment efforts on the continent. The United States, for example, has doubled bilateral trade with sub-Saharan Africa since 2001.
Many businesses and investors are still relatively unaware of the opportunity in Africa and, as the continent is still a fairly small economy, fragmented into almost fifty countries, it’s difficult to find good information. However, over the past couple of decades, several African countries have undergone economic reforms and have become much better places to do business than much of the world.
As with all frontier markets, there are risks of investing in Africa due to corruption and lack of transparency, but if you’re willing to deal with the risks or do the homework to avoid them, the returns will be much greater than anywhere in the developed world. In the first decade of this century, African countries delivered 14% yearly returns on investment, a high number for even emerging markets; and 9 of the 15 fastest growing countries in the world are in Africa.
The continent is rich in farmland and natural resources, and as the world’s population continues to grow, these resources will become more and more valuable. As Africa grows, its countries will need everything from telecommunication and transportation services to convenience products for a growing middle class.
Beyond commodity exports, as wages rise in Asia, Africa will be the last remaining low-wage region in the world and being more proximate to North America and Europe than Asia will afford it the opportunity to grow its manufacturing base as well.
Africa is a large and diverse continent, and while there are bastions of opportunity, there are also places so corrupt and unstable that I would recommend that almost everyone stay away from them for now.
That being said, there are five countries in Africa that I believe show the most promise, and getting in now will be one of the wisest investments of this century:
Kenya is home to the fastest growing economy in Africa, and the third fastest in the world. Its location on the eastern shore of Africa positions it as a transportation hub and gateway to the continent. It’s the largest economy in East Africa and has a young, highly-educated, English speaking workforce. Because of this, it’s the regional headquarters for virtually all multinational brands in the area. It’s capital, Nairobi is the largest city between Cairo and Johannesburg.
Kenya is making huge investments in transportation, telecommunications, energy (such as a $700 million wind power project by Google) and grid infrastructure. Finding an opportunity to invest in a complementary vertical would be where I would see opportunity in what is one of the more stable regions of Africa. Also, with high speed internet, VC firms, a tech-savvy workforce, and a time zone compatible with Europe and Asia, Kenya is one of the top places in Africa to launch a startup.
With strong property rights, a mature, diversified economy, and improving infrastructure, Kenya is one of the top African countries to invest in or in which to start a business.
One of the most stable countries on Africa’s west coast, Ghana is expected to enjoy 32.7% capital growth over the next five years. English is widely spoken here, but we’ve found that it may not be the best place for entrepreneurship.
However, it is one of the most free market economies in Africa. Plus, foreign property ownership in Ghana is permitted and real estate prices are still rather reasonable, especially compared with much of the continent. Its capital, Accra, is one of the most livable frontier market cities in the world.
There are enormous opportunities here for real estate, telecommunications, financial services, energy and manufacturing. While it’s made massive gains in all of these areas recently, it’s nowhere near its potential.
Since the 1994 Rwandan Genocide the country has recovered at an unbelievable pace. Fiercely anti-corruption President Paul Kagame has modeled himself after Lee Kuan Yew in hopes of turning Rwanda into the “Singapore of Africa”. It’s one of the easier countries in the world to do business in as you can get a business started within one day.
As a small country, it’s already having as much success in the startup and IT sector as any on the continent. It is home to several incubators and is already host to Carnegie Mellon’s only campus in Africa.
While the country may not have as developed of an economy, skilled of a workforce or access to the resources that others on this list do, it is investing in technology and infrastructure and, if it stays the course, it has the fundamentals to succeed long term.
A small island in the Indian Ocean, Mauritius is Africa’s answer to hassle free, foreigner friendly islands found in other parts of the world. Not settled until this colonial period, the country is multiethnic, multi-religious, multicultural and multilingual.
Its government is consistently ranked highly for democracy and economic and political freedom. In fact, the Heritage Foundation ranks Mauritius as the 10th freest economy in the world, especially due to investment freedom. It is also one of the top 20 countries for doing business according to the World Bank. As more money flows through Africa, look for Mauritius to become a Hong Kong of sorts as an offshore financial center.
In addition to being a hub for financial services, it’s also a beautiful island that attracts a large amount of tourism. Foreigners are allowed to own and develop property on the island and automatically qualify for permanent residency if they invest more than $500,000.
Botswana is an economic case study in development success.
Rather than fall victim to the cycle of foreign aid and bad governance that has afflicted much of sub-Saharan Africa, Botswana has averaged roughly 9% annual growth – the highest average in the world – since independence from Britain in 1966. The country has brought GDP per capita from US $70 to $14,000 today, making Botswana an upper-middle income economy, comparable to Chile and Argentina.
It has the lowest corruption in Africa as well as one of the freest economies. Poverty has been reduced while education has become widespread.
While much of Botswana’s economy is based in diamonds, it has a substantial financial reserve and manufacturing is continuing to grow as its economy diversifies. As its reliance on minerals wanes, there will be opportunities for growth in other areas and, as the country has proven that it’s a good bet for business, it will be one to look at in Africa.