Late last year the world was shocked when the IMF broke the news that the United States lost the place of the world’s largest economy for the first time since 1872, when it took it from the Great Britain. Adding an insult to the injury was the fact that the new economic ruler was no other than China. And who would tell, just a few decades ago, that the country which struggled to keep famine at the bay may once become the Great Asian Dragon? If this experience has thought us anything, that would be that emerging economies may be hiding even in the most unlikely places. One of these places is certainly Africa.
Africa Today and in the Future
It should not be too much of a surprise that Africa does not enjoy the same degree of development as some of the First World countries do. Still, as much as this fact may be true, this huge continent cannot and should not be observed as one homogenous entity. Only when we start looking at Africa as the sum of its parts, we will see that number of countries are doing their best to overcome the colonial heritage, eradicate corruption, and introduce long-overdue reforms which will finally push the entire continent in the 21st century. It seems that these efforts paid off since economists saw Ethiopia, Congo, and Mozambique amongst the 20 fastest growing economies in 2015. Still, fast growth is not a guarantee of stable economy, so let us look what are Africa’s desires to make a turnaround within next two generations (similarly to South Korea, Saudi Arabia, and indeed China) exactly founded upon.
Huge Growth Potential
First of all, it should be mentioned that Africa is a massive continent (its landmass is equivalent to the one of the United States, Europe, Argentina, India, and China combined) blessed with abundance of natural resources, and still untapped mineral reserves. As a matter of fact, Africa holds 54%, 99%, and 85% of world’s gold, chrome, and platinum reserves, respectively. Additionally, some of the African countries feature vast amounts of oil, and natural gas (Algeria alone produces 82,760,000,000 m³ annually). Other important indicator which makes Africa very similar to emerging countries of the world is the huge population pool of more than 1.1 billion people. Making this number even more impressive is the fact that more than 70% of Africa’s population is under the age of 35, and 40% younger than 17. This kind of demographics is able to introduce a wave of consumerism, and sustain stable economic growth decades from now.
Betting on Africa’s Growth Potential
Keeping these strong prerequisites for development in mind, it should not be that unorthodox to bet on the continent’s future growth. Considering Africa’s broad diversity, broad approach seems like the best strategy. It should be mentioned, though, that majority of African firms do not trade on American exchanges, meaning that you should choose some exchange traded fund, like Market Vectors Africa ETF (AFK). Although the ETF is largely dominated by commodity and financial names (these two sectors make 75% of its assets), that did not hurt AFK on the returns, at least for now (It actually managed to produce 7% annual return in the last five years). Investors who are trying to maximize their returns should, however, pay attention to several individual African nations represented by various ETFs. What makes these investments great is the fact that most of the stocks are leaders across entire Africa (e.g. AngloGold Ashanti Ltd.), which makes them almost equally as broad, as AFK.
Invest In Construction and Housing
Urbanization is especially fast in Southern African countries. One of the most beneficial areas to invest in is real estate and construction. Internet based real estate sales and renting services are signing large investment deals and entering Western markets. There are many great real estate portals that offer housing, business, finance and transportation solutions in Southern African capitals, such as propertymaputo.com.
Upon observing the continent’s current economic state, it should be obvious that Africa is very fertile, if somewhat neglected ground for fruitful investments. Ignoring this opportunity is a big mistake because, while everyone waits for another China to happen, the next economic giant is already slowly getting on its feet.