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Missing the obvious

Intelligent investment is always a case of looking at the obvious and then considering what else you may have missed. Yet in the panic of the current financial climate, the obvious and the overlooked may be the same thing. The received wisdom is that economic fragility in North America, Europe and Japan is currently being counterbalanced by reduced but still buoyant growth in India, China and some other Asian emerging markets. Yet the most obvious omission in this vision is Africa. Annual economic growth on the continent has averaged above 5% over the past decade. At the same time, its total population increased from 500 million in 1982 to 1 billion in 2009 and the United Nations forecasts that it will reach 2 billion soon after 2050, representing about half of global population growth over that period.

A continent of 52 countries is bound to have a combination of success stories and disasters, so the outlook is by no means uniform. Yet global giants are investing in more countries and more sectors to ensure that they are not left behind. True, raw materials capture most attention at present. Africa is becoming an increasingly important global supplier of oil, gas, iron ore, coal, bauxite and copper. In addition, massive mining investment is triggering the biggest boom in port, road, rail and airport development since decolonisation. When asked recently to name the biggest challenge to his state’s position as a global mining hub, the premier of Western Australia said just one word: ‘Africa’.

However, because the quality of government and governance is improving year on year, mining and transport are not the only attractive industries. Mobile telecoms penetration is growing faster here than anywhere else in the world. International retailers such as Wal-Mart are moving into select markets; tourist numbers are holding steady in the face of the global financial crisis; and, above all, cross-border banking investment is taking off in market after market.

The Central Bank of Nigeria has made real strides in cleaning up the financial services sector in what will be Africa’s biggest economy within the next decade. It has been prepared to remove the heads of badly governed banks; bringing them into national ownership until they can be recapitalised. Economic integration in the East African Community (EAC) has seen more than a dozen banks set up subsidiaries in neighbouring states. Finally, British banks, such as Standard Chartered and Barclays, which have long operated in more attractive African markets, are now using Kenya and Zambia as jumping off points for regional expansion.

The picture is not one of unbridled optimism but one of opportunity. It has long been received wisdom that the best time to invest wisely is during a downturn. Those who fail to get in at the ground floor may find that they have to pay a heavy price for later entry.