Will 2013 Be the Year to Invest in Africa?

You’ve likely heard the statistics – Africa’s economic growth is staggering. During a period in which the global economy is bogged down by a recession and the rest of the world flounders at well under a 2 percent annual GDP growth rate, Africa has seemingly defied the economic landscape registering growth rates of 4.5 percent in 2010, 5.0 percent in 2011, around 6 percent in 2012, and projections exceeding 7 percent by 2015 (UNDP).

Morningstar captured the attention of the investment world last week when it ranked Nile Pan Africa Fund, the only US mutual fund focused exclusively on Africa, number one in performance out of 543 funds in it’s Diversified Emerging Markets Category for the year ended December 31, 2012.

Yet most in the global West refuse to be too impressed by the numbers. Most companies and investors in North America and Europe still balk at the notion of doing business with Africa. After all, we’re talking about Africa – the poorest of the poor. But is it wise to dismiss these reports so effortlessly? Don't most great investors only become successful by risking their assets for the potential of gain when and where others are unwilling to do so?

Smart investment depends upon some degree of due diligence, and I think it’s fair to say that most Westerners simply do not know Africa, much less its investment climate. Most of us have never spent time in Africa and traditional media – our largest window into that world - has been tinted to emit an overwhelming gloom over the “dark continent.” In his book, Africa, Altered States, Ordinary Miracles, Richard Dowden explains how "persistent images of starving children and men with guns have accumulated into our narrative of the continent (because) journalists are sent to get 'the story'…'keep it simple' is the message. Editors want breaking news but have little interest in explanations. The media's problem is that, by covering only disasters and wars, it gives us only a slice of the reality of Africa.”

And so, while most in the West turn a blind eye to reports of stellar economic progress, others are busy cashing in. Leading the investment surge is China, whose direct investment in Africa has leaped from less than $100 million in 2003, to around $15 billion in 2012.

Certainly, there has been much uneasiness globally around the impacts of China’s increasing involvement in Africa. In an Economist article entitled, Africans are asking whether China is making their lunch or eating it, Oliver August pointed out the harm resulting from China’s overall lower quality standards, lack of social and environmental responsibility in business practices and poor labor relations.

Yet, while the debate rages, the fact remains - China is by far Africa’s largest trading partner. On paper, and in the minds of many Africans, this means that China is doing far more than the Western world to both benefit from and contribute to Africa’s robust economic growth.

"We look forward to Chinese enterprises' investments,” says Bernadette Artivor, Executive Director of the Namibia Investment Center. “Investment helps us to fund the construction of transportation and medical infrastructure.” Meyo Akoulouze Maryse, an officer with the Cameroun Investment Promotion Agency, took it one step further. "I am fairly certain that trading with China is better than with Western countries, since China is now rising so quickly. China knows how to develop an economy rapidly. Our relations are good.” Deborah Brautigam‘s book The Dragon’s Gift offers a more complete understanding of the reality behind China’s relationship with Africa.

Concern about China’s approach is no doubt justified, however, one would be hard pressed to argue against Africa’s need for responsible investment dollars. In an age when investors are increasingly aiming to create a positive impact with their money, it is interesting that so many choose to criticize China rather than investing in Africa’s development themselves.

So, what does the world’s second largest economy see that investors in the west are missing?

For starters, Africa is home to much of the world’s best agricultural land, an already enormous and booming labor force, the world’s fastest growing middle-class, rapidly developing infrastructure and governments which are taking enormous strides to liberalize their markets. 

Dig deeper into market opportunities and you will find an IT sector poised to explode. Since 1998, the number of cell phones on the continent has grown from fewer than four million to more than 500 million. A great example of one bold mobile telecommunications company who is reaping rewards in this booming market is Bharti Airtel. After investing over $1 billion in its mobile operations in Africa, the Indian company boasted a profit of US $13 billion in Africa for 2010/11 fiscal year.

According to ITNews Africa, mobile transactions are also revolutionizing future of banking in Africa. Safaricom Kenya’s M-Pesa has taken hold of the East African mobile money industry with it’s “text-me-money” technology which allows users to store money, pay utility bills and complete commercial transactions on their mobiles. Most consumers in the U.S. aren’t even doing that yet. Time Magazine quoted the opinion of California-based mobile-banking innovator Carol Realini, Executive Chairman of Obopay, “Africa is the Silicon Valley of banking. The future of banking is being defined here… It's going to change the world.“

As for the notions of pervasive obstacles and booby traps that terrify the masses from investing in Africa, ask Carsten Brinkschulte, former CEO of Synchronica, a UK-based mobile messaging service provider, whether Africa is worth the risk. “The negative publicity that plagues Africa as a business destination is outdated. While corruption, poor infrastructure and institutional bureaucracy can certainly make for a challenging business environment, Synchronica has found the continent to be incredibly entrepreneurial and backed up with a wealth of highly skilled, resourceful and incredibly talented people.”

Even a few of our most recognizable corporate giants have mingled with the budding economic behemoth in ways that reflect serious commercial interest combined with commitment to positive impact in local communities. Microsoft has long held a commercial, albeit nourishing presence in Africa and Walmart turned heads recently by acquiring Massmart, a leading retailer in Sub-Saharan Africa which happens to rank among the world’s top ESG performers. Visa made a big statement that underscores its perceived alignment between providing financial services to East Africa and improving its balance sheet. Last year, it opened a regional headquarters in Nairobi, Kenya while also establishing an intensive partnership with the government of Rwanda. A handful of our corporate leaders are reaping the rewards for their willingness to pioneer commercial approaches to help develop Africa, yet the idea is still far from entering the mainstream.

Larry Seruma, Chief Investment Officer at the aforementioned Nile Capital Management calls Africa “the world's most underappreciated, undervalued growth story."

Who will take the next great risk to enter an even greater story?