As told by Oliver Bell.
As the portfolio manager for the T. Rowe Price Africa and Middle East fund, I look for investment opportunities across two large regions — more than 60 countries in all. Since there’s much less research than usual written about the companies and countries the fund covers, it’s critical for us to visit the countries and meet with management. On average, I’m traveling once every four weeks.
Africa represents what we like to call “frontier” markets. To provide some perspective, you can think about global markets in three distinct segments. “Developed” markets like the U.S. and Europe sit at the top – they have strong regulation, a lot of liquidity, and broad, diversified industries. “Emerging” markets like China and India are a level down from there in terms of development. And “frontier” markets, like most of Africa and the Middle East, are areas where people haven’t really invested before—they’re nascent markets that have been very illiquid. Historically, you haven’t been able to get much exposure to them, but now they are becoming investable thanks to greater integrity in the general business environment, a number of infrastructural improvements, and greater stability overall thanks to social, economical and political reforms. And because these markets are starting from such a low base, they’re growing very quickly.
Right now frontier markets in Africa have between 5-7 percent GDP growth annually, as opposed to the developed markets, which aren’t growing much at all. In the emerging markets there’s a mix of faster and slower growing economies, but in the aggregate they’re not growing as fast as the frontier markets.
What makes Africa so interesting in particular is that there is massive change taking place. This is a region with one billion people, and by 2040 the continent will have the largest population of working-age people on the planet. There is very little debt and a large amount of resources. Recent growth has been broad-based across all sectors, and investment in infrastructure is visibly picking up. Things have changed dramatically, and I believe structurally, which makes this an exciting investment destination.
Opportunity on the Heels of Modernization
Africa is comprised of 54 countries. If you go back to the 1970s, around two-thirds of the countries on the continent were considered to be at war—either with their neighbors or internally. Now, some 30-40 years later, there are probably only three countries in that state, which is quite a big change.
Politically, you see dictators being effectively overthrown, and elections taking place, sometimes for the first time. You’re seeing transitions of power, again sometimes for the first time. This year and last year, about half the countries in Africa will have had some form of a democratic election. In the 1970s, that would have been unheard of.
There’s still a long way to go, of course. I recently read a paper by Adam Przeworski and Fernando Limongi called “Modernization: Theories and Facts,” that suggested that once a country reaches $6,000 per capita, its politics become more stable. Also, very few free economies that get to $6,000 per capita revert to a state of political instability. A lot of African countries are currently only $1,000 per capita, but the momentum is positive.
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