Investment Adventures in Emerging Markets

Africa: Challenges and Outlook

In my previous blog, I touched on some of the opportunities I saw in Africa. In this post, I will discuss what I think are the continent’s key challenges and my outlook for the region.

Corruption is a major problem in Africa. However, it takes two to tango, so accusations of corruption against African governments could also potentially be lodged against entities in the developed world that seek to buy the influence of these governments. One important development has been the Cardin-Lugar amendment to the Dodd-Frank finance reform bill in the U.S., requiring among other things, that oil, natural gas and mining companies registered on the New York Stock Exchange disclose any payment made to a foreign government for the purpose of the commercial development of oil, natural gas or minerals. Some believe that the Cardin-Lugar amendment is more important to Africa than the debt relief of the last decade.

The sentiments that arose in recent tensions in North African countries such as Tunisia, Egypt and Libya have spread not only to other African and Middle Eastern countries but also to Asia and other parts of the world. I believe regimes that do not have the support of the public and have not been elected democratically are likely to come under increased pressure going forward. Such a transition could lead to periods of volatility, as we continue to see in the Middle East and North Africa. While these events can be distressing and sometimes have a very high personal cost, it is important to consider how these developments can act as building blocks for the future, with increasing economic and political freedom being very positive for the welfare of individual countries as well as the overall region in the long term. Wherever we invest, we do consider these risks and factor them into our investment decisions.

Despite Africa’s problems, I believe the long-term outlook for the continent is bright. With its substantial wealth in natural resources such as gold, oil, platinum, iron ore, copper and large areas of arable land, Africa is well-placed to benefit from increased growth and higher demand in emerging markets such as China and India. In 2010, Anand Sharma, India’s Minister of Commerce and Industry, announced that the Indian government planned to invest US$1 trillion in Nigeria and other parts of Africa during the next decade. In countries such as Angola, Nigeria and Ethiopia, rapid economic growth has resulted in better living conditions, lower child mortality, higher primary school enrollment and greater access to clean water. As larger emerging markets increasingly invest in Africa, we are seeing a lot of money funneled toward infrastructure projects such as roads, bridges, schools and hospitals, all which are likely to benefit African economies over the years to come.

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