Data provided by iNet BFA
Loading...
See More

New oil

Dec 07 2012 07:38 Malcom Sharara, Fin24's correspondent in Zimbabwe
Africa map

(Shutterstock)

Related Articles

Africa’s pivot

Africa chokes telecoms growth

Luxury brands snub Africa

World's private equity eyes Africa

Trade conditions defy weak economy

Biti: Zim economic outlook bleak

 
EARLY this year, Reuters reported that global institutional investors plan to boost their asset allocation in African markets over the next five years, and are shifting to long-term investment strategies for the continent, instead of more speculative, short-term bets. 

According to the survey conducted by Invest AD and the Economist Intelligence Unit, investors eye Africa's “emerging middle class”, and not natural resources, as the most attractive aspect for the continent. 

In the past, Africa outside South Africa has always been associated with unexploited natural resources and if not these then with famine, old despots, civil wars and all sorts of ills. Only last year the politics of the continent’s Arab region dominated headlines prompting investors to press panic batons and in the process labeling Africa as too risky for investments. 

South Africa had its own challenges with Julius Malema’s nationalisation crusade the most notable one apart from the crippling mining wage strikes of course. 

Some reports however, challenge long-held perceptions of Africa as a continent of hopelessness. According to a 2011 report by the African Development Bank (AfDB), one in three Africans is middle class, a rising group of consumers to rival those of China and India. 

EARLY this year, Reuters reported that global institutional investors plan to boost their asset allocation in African markets over the next five years, and are shifting to long-term investment strategies for the continent, instead of more speculative, short-term bets. 

According to the survey conducted by Invest AD and the Economist Intelligence Unit, investors eye Africa's “emerging middle class”, and not natural resources, as the most attractive aspect for the continent. 

In the past, Africa outside South Africa has always been associated with unexploited natural resources and if not these then with famine, old despots, civil wars and all sorts of ills. Only last year the politics of the continent’s Arab region dominated headlines prompting investors to press panic batons and in the process labeling Africa as too risky for investments. 

South Africa had its own challenges with Julius Malema’s nationalisation crusade the most notable one apart from the crippling mining wage strikes of course. 

The AfDB reckons that the 313 million Africans living above the poverty line are a key factor in helping countries boost growth more on domestic demand and less on exports. It noted that the middle class was responsible for at least half of Africa's GDP of $1.6 trillion. 

This development should be embraced by investors looking to invest in the continent, as the possibilities for growth are much great. Yes Africa has for years been known as a rich mine for natural resources. Likewise, any growth for the continent was expected to come from the rising commodity prices. 

Rightly so, but now it is evident that Africa is fast becoming a consumer base, mainly because of the emergence and growth of the middle class, with a little help of course from the wannabes who resort to excessive borrowings just to keep up with the Joneses.

The new middle class is quickly adopting many of the luxuries of modern life, while signs of economic growth brought on by the middle class are evident across the continent.

For instance, according to Groupe Speciale Mobile Association, the continent is the world's fastest-growing mobile phone market. The association claims that Africa's 600 million users make it second only to Asia as subscriber levels have grown by almost 20% for each of the past five years, and the total is expected to hit 735 million by 2013.

Possession of cars is also proof that the middle class is driving growth. In Ghana, for example, possession of cars has risen by 81% in the past five years.

Spending by the African consumer is projected by the McKinsey Global Institute to reach $1.4 trillion in 2020, up from about $860bn in 2008. Retail giants such as Walmart have already positioned themselves for what could be the biggest growth story after China. 

These developments have spurred growth in most countries. Across the continent, most economies are consistently growing faster than those of almost any other region of the world. At least a dozen of them have expanded by more than 6% a year for six or more years. Ethiopia will grow by 7.5% this year, and this is achieved with limited exports.

But for the continent to fully enjoy the benefits of a growing middle class there is a need to strike a balance between the majority and the elite.

According to the AfDB, an elite of about 100 000 Africans had a collective net worth of 60% of the continent's gross domestic product in 2008.

Africa can only fully exploit its growth potential if its mineral riches trickle down from the elite to create a group of consumers large enough to sustain broad economic growth in other sectors.

Economies that have experienced high growth rates have done so because they have allowed developments in primary sectors cascade downwards into other sectors. This will lead to a virtuous circle of yet more jobs, new government revenues and better public services, eventually benefiting the poor.

Zimbabwe’s diamonds for instance are said to have created 60 000 jobs in India alone, imagine what this could do to that country’s economy if a sizeable portion were cut and polished there.

The AfDB says the focus of aid and development assistance would also have to change in the next 10 to 15 years.

Governments’ support will have to be concentrated on supporting private sector initiatives, as the bulk of the emerging middle class is employed – and therefore harbours the future middle class – in private sector businesses as opposed to the public sector. 

 - Fin24

*Malcom Sharara is a Fin24 columnist, the views expressed are his own.



Follow Fin24 on Twitter, Facebook, Google+ and Pinterest.

africa  |  oil
NEXT ON FIN24X

Machines and mental power

2014-09-02 07:10

 
 
 

Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
0 comments
Add your comment
Comment 0 characters remaining
 

Company Snapshot

We're talking about:

Small Business

“Hippie sense makes business sense,” an entrepreneur said, adding that "purpose" was core to success.
 

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...
Loading...