Investing in Sub-Saharan Africa
ME PoV Summer 2015 issue
The next frontier for Middle East investors?
Investors from the Middle East region are increasingly recognizing the significant opportunities that Africa offers for investors. In this article we explore the key investment themes and opportunities that are driving this and some of the challenges to be considered.
Trade links between Africa and the Middle East are deep-rooted and historically significant. From the Middle East traders who brought Islam to North Africa to modern day political and economic support and trading of agricultural, natural resources and hydrocarbon products, the ties between the regions have grown ever stronger.
Leading global economic growth rates
Sub-Saharan Africa is forecast to record the highest GDP growth rate between 2014 and 2018 at 4.8 percent. Strong GDP growth is anticipated to be underpinned by the rise of the middle class, population growth, the dominance of youth, rapid urbanization and the fast adoption of digital technologies.
In addition to higher forecast African population growth when compared to the rest of the world, a significant portion of the population is anticipated to enter the middle classes. Indeed, by 2030 over half a billion Africans are projected to be middle class. While these numbers are very impressive, it should be noted that 60 percent of those considered middle class today live on c. US$4/day, though their relative purchasing power is significant.
More than 200 million Africans (20 percent of the total population) are aged between 15 and 24, and that demographic is expected to grow to c. 320 million by 2030. These younger Africans form a large share of the rising middle class and seek to access a wider choice of food, consumer goods, entertainment and increased connectivity.
In addition to the growth in population and consumerism, Africa is increasingly concentrating in large urban areas, which permits an increase in the speed of economic development and the spreading of the costs of infrastructure over a larger number of inhabitants. Major urban areas are predicted to link up populations and create sizable markets and trade opportunities. The fast adoption of digital and mobile technologies has also allowed Africa, in certain instances and in certain sectors (e.g. banking) to leapfrog historically poor infrastructure investment.
Alongside the anticipated consumer-led economic growth described above, hydrocarbon deposits and the benefits of other extractive industries have been, and will continue, to be a significant source of income for these countries.