The whole picture

Canny investors are positioning themselves in Africa, ready to reap the windfalls from the growth in the middle class population, while others are only seeing part of the picture, says Anver Versi

BusinessRemember the story of the three blind men who were curious to find out what an elephant was like? They were taken to an enclosure in the zoo where each felt different parts of the elephant – its ear, its trunk and its tail. When asked what an elephant was like, one said: “It’s a flattish, soft creature that flaps about.” The second one said: “It’s long and tubular, like a big worm.” The last one said: “It’s short, hard and has a tuft at its head.”

They were all of course both wrong and right – they had got the parts right but were completely off the mark when it came to figuring out what the whole elephant was like. Yet, each went away convinced that they had got the full picture.

Many potential investors suffer from the same syndrome – partial knowledge – when it comes to Africa. They pick one small part, or the part that is currently in the news, and project it over the whole continent. During the Ebola outbreak in three small countries in West Africa some tour companies and even airlines were cancelling their business as far away as East and even South Africa – because it’s ‘all Africa’!

Ignorance on this scale has cost investors billions of dollars in lost opportunities – and deservedly so; but it can be frustrating for Africans who need the foreign investment to get to the next level of development, since saving rates on the continent are still too low for the continent to go it alone.

But for those who have taken the trouble to study the continent, Africa has consistently provided the highest returns on investment in the world over the last few years. The continent’s rapidly growing middle class is young and has sufficient disposable income to constitute a massive consumer market.

“These socio-demographic factors are not only a positive show of sustainable growth in certain economies, but also demonstrate that there will be rapid growth in needs and demands for consumables, which promises an immense opportunity for investors in consumer-facing sectors – including for instance, fast-moving consumer goods, healthcare and financial services,” says Dapo Okubadejo, partner and Africa head of deal advisory and private equity at KPMG.

Massive shopping malls in West Africa, such as the Palms in Lagos and the Accra Mall in Ghana, house leading international brands like Levi’s, Mango, Puma and Nike, while British retailers H&M and Topshop, Forever 21 from the US, Zara from Spain and even Cotton On from Australia are making money hand over fist in South Africa. Porsche, Jaguar and Landover are among several international brands that have opened showrooms in a number of African countries.

The pattern is different in East Africa, where local companies tend to import fewer items from international firms and instead concentrate on manufacturing an increasing volume and variety of consumer products, not only for the local market but for a growing export clientele. Little wonder that the volume of private equity funds raised for investment in African firms has doubled from US$2bn in 2008 to US$4bn in 2014, and is still rising.

In some thirty years the continent’s population will have doubled to over two billion, creating a massive demand for goods and services. Some of the canniest global investors are already positioning themselves to reap this windfall. Others are still clutching bits of the continent and deluding themselves into thinking they have got the whole picture.