When there’s blood in the street, buy property, said Baron Rothschild; while there isn’t literal blood on the streets, in most cases, the sentiment is still valid now. Opportunities are ripest when things are going from bad to slightly better, Africa has ridden a wave of positive sentiment for the past decade, with the recent depression in growth, global perception, and capital; this does not change the fundamental potential for investment and in fact makes the market more attractive due to the government’s need for capital and their willingness to improve local investment environments to attract investors. What is Africa’s economic outlook, and what solutions are there to roadblocks slowing growth such as soft commodity prices, tumbling oil prices, and weakening of African currencies? How are they affecting the Continent’s capital inflows? So what has blood got to do with money? and how does this relate to Africa’s economic outlook?
Africa has real challenges.. but the solutions might be clearer to those who wish to “see”. “Across Africa investors joke about living in a “bring-your-own-infrastructure” continent, in which firms must provide independent generators, water purification, and even sewage treatment when building a factory or hotel. Of these, the costliest is often power. Nigeria, which has a population three times larger than South Africa’s, generates just a tenth as much electricity” (Economist, Sep. 2014). For the past decade, Africa has been a hotspot for emerging and frontier market investors with a high-enough risk tolerance and excellent local on-the-ground knowledge. It has even proven to be a hotspot for those without local expertise. Riding the developing market wave of a growing middle class, with ever increasing amounts of disposable income investors have been pursuing sectors across the board, consumer goods, energy, infrastructure, real estate, agribusiness…in a continent that is lacking in many ways, opportunities still abound.
While African investment has, is, and most likely will always be plagued with global headline risk, highlighting the most negative aspects of the region, and planting seeds of doubt across the investment universe, the huge demand for investment along with rapidly increasing regulation has led to an inundation of capital, and the growth of local funds and global allocations to the region. However, in more recent years, the largely irrelevant (to investment specifically) news has become more relevant; devaluations of local currencies and the crash of oil prices have hit many petroleum-producing nations hard, but what does this mean for investors? Ask Shoprite and MTN in Nigeria and other independent power providers who now attempt to make us “see the light” in Africa.
A unique combination of softening commodity prices, local currency devaluations, and budget deficits have been instrumental in providing opportunities for investors. As governments face capital constraints, privatization has opened many doors to investors who were previously unwilling or unable to invest in public companies. Economist reports that the region’s electricity-generating capacity will increase by more than half by the end of the decade. In the longer term governments have set what are probably over-ambitious targets. Angola, for instance, wants to increase its annual generating capacity from 1,800mW to 9,000mW by 2025. South Africa, rising from the Eskom energy crisis in 2008, has encouraged more private investments. The country, which already generates about two-thirds of the region’s power, is adding about 15,000mW to its grid—about as much as the rest of sub-Saharan Africa produces now. Most of this will come from massive coal-fired power stations such as the one at Medupi, site of an existing coal mine. It alone will produce more power than Nigeria when it comes into service. Even Nigeria’s privatization efforts in the energy sector is expected to yield the desired results.
So despite the blood on the street….it’s not only possible to “see the Light…it’s possible that the Light shines Brighter” on those who can “See” multiple streams of incomes… Read more on Olutoyin Oyelade’s comments on the African opportunity