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.