Of course, a lot of African countries rank at the bottom of indices like “Ease of Doing Business.” And much of that has to do with simple infrastructure.
One example: it takes 20 days for a container to go from the port in Mombasa in Kenya to the capital of Uganda. That’s about 925 kilometers, or 475 miles. In Europe, you can drive 1,000 kilometers in 8 hours.
In Nigeria, to cite another example, every bank branch needs its own power generator, because there’s no electrical grid. That increases the cost of doing business.
If Africa can get over these infrastructural hurdles, then there will be an economic snowball effect. In countries across the continent, they’re talking about pushing through reforms that will help ease doing business and bring costs down, and if they do, that will have a very significant impact. (See our infographic for a full overview of developmental change in Africa.)
Investing For the Long Haul
One of the reasons Africa has been one of the best performing regions during the last five years is that it isn’t a crowded trade yet. What I mean is that there is very little “hot money” invested by hedge funds in the African markets at the moment, or by funds investing off their strategic mandate. This means that when there is a reduction in risk appetite in global markets, many of the investors that remain invested in the African markets are not withdrawing their money—those markets are typically not falling as much as the wider emerging or developed markets are, so generally speaking, they are outperforming those markets. Many people and institutions that are invested in Africa do so with the understanding that change is a long-term process on the continent, and much of the money they’ve invested there is invested for the long term. Of course, past performance cannot guarantee future results.(See our infographic for a full overview of developmental change in Africa.)
Economic management, democracy, and improving institutions and infrastructure will be key in the next decade. We need to see governments controlling inflation and keeping their budgets balanced. We need to see rule of law and peaceful transitions of power. And we desperately need to see investment in power, roads, and railways to continue. There will be challenges and risks in Africa, and we should expect setbacks—there will be winners and losers, but on the whole I’m optimistic that we will see many more winners than in the past.
Africa really wasn’t on many people’s radar two years go. But this year, the frontier African markets are up 30 percent to date. So people are going to start noticing.