All eyes are on China and India, but have investors missed an even bigger sleeping giant?
The African continent is widely dismissed as a global economic basket case, but as we have seen in the last decade, fortunes can shift with astonishing speed. Asia and Latin America have been transformed risky flyers to sturdy engines of global growth, and a similar shift in Africa's fortunes could benefit far-sighted investors who get in early.
Some argue that sub-Saharan Africa is the world's last great opportunity, but as you can imagine it's not without its dangers.
Sub-Saharan Africa was enjoying quietly impressive growth of around 6% a year before the credit crunch. Even Nigeria, which has been called the most corrupt country on earth, saw its GDP growth average more than 7% between 2003 and 2006, thanks to its oil and banking sector, and now boasts around $50 billion in foreign exchange reserves.
Africa also has notorious failed states such as Somalia and Zimbabwe, but the continent isn't all chaos, anarchy and corruption. Kenya has sound government and a healthy tourist industry, Ghana is stable, Zambia is benefiting from copper and agricultural exports, and Angola is growing fast.
Out of Africa
Africa's insular banking sector was barred from the credit-crazed party that left the West nursing a highly toxic hangover. Yet it has been hit by the subsequent lack of liquidity and the slowdown in global trade.
The IMF is predicting that African GDP will grow by an impressive 4% in 2010, a figure Gordon Brown can't even imagine. Africa's GDP even grew by 2.5% in 2009, compared to a UK drop of around 6%.
Standard Chartered bank estimates 2009 growth at a more modest 1%, but it is more optimistic about 2010, when it forecasts a 4.7% increase, and 2011, when it predicts 5.7%.
We all know The Perils of Predictions, but we also know the perils of ignoring an up and coming area, and only hopping on after the bandwagon has already rattled on.
Nobody is claiming that Africa is about to solve its multiplicity of problems, such as graft and tribal conflict. But that shouldn't necessarily hamper its economy, because its growth will be powered by worldwide demand for its commodities, notably oil, gas, metals and food.
With emerging economies hungry for the continent's natural resources, you could call Africa a geared play on commodities, or even on China.
Out of darkness cometh light…
John Mackie, head of African Funds at asset manager Stanlib, part of Standard Bank, South Africa, says Africa's prospects will be boosted by global recovery. "A key factor to watch will be the oil price, where a rise will benefit most of the continent, because over 25 African countries are now net exporters either of oil or natural gas. With the exception of East Africa, the entire continent is geared to a recovery in commodity prices generally."
African stockmarkets are still 50% below the highs, with valuations as cheap as they have been for five years or more. "Our Africa Equity Fund portfolio is trading on an estimated 8 x 2010 earnings, demonstrating better value relative to other emerging markets. Given the favourable outlook for 2010 this could offer scope for a material revaluation."
China remains the wildcard, he says. "It has the financial reserves to take a long-term strategic view and it is clearly positive about Africa's prospects. Perhaps it's worth investors following their example."
China is building close relationships in Africa that could eventually squeeze out the West, trading infrastructure such as roads, railroads, ports and schools for oil and minerals. After the rampant colonialism and dodgy aid packages that the West has inflicted on Africa over the decades, we're in no position to criticise the Chinese way of doing things.
Safari, so good
Investment returns over the past 12 months have been pretty decent. The MSCI Africa index rose 46% over the last 12 months, behind BRIC at 82%, but above Europe at 29% and North America at 24%.
Investment fund returns haven't been to earth shattering. Offshore fund Imara African Opportunities is up a modest 14% over one year, and down 11% over three years. Investors also have to stump up a minimum $100,000.
Investec Africa & Middle East, launched in June 2008, grew 28% over the past 12 months, and you can invest a minimum lump sum of a more modest £1,000 or £100 a month.
Fidelity Emerging Europe, Middle East and Africa, launched in June 2007, offers partial exposure and is up 63% over 12 months.
Alternatively, you might like to find a smaller company such as Lonrho (LSE: LONR) that has hefty interests in Africa.
High levels of foreign investment could reap benefits for investors, but don't take too many risks on your African adventure.
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