Darden School Conference Asks: With So Much Growth, Why Isn’t Everyone Investing in Africa?”

A well-kept secret: African countries are the economically fastest growing in the world, and only the experts seem to know it.

The Darden African Business Organization revealed the potential of the African continent — more than 11.6 million square miles (more than 30-million-square-kilometers) — at the second Africa Business Conference, “Africa: Open for Business,” which took place at the University of Virginia Darden School of Business on 27 January.

Keynote speaker Vincent Rague (MBA ’84), co-founder and chairman of the supervisory board of Catalyst Principal Partners, based in Kenya, spoke frankly about the image that camouflages the potential of this quickly developing region.

“For a long time, when people talked about Africa they talked about an evil civil war, hunger, all of that,” Rague acknowledged. “Now one has to recall that there are more than 50 countries in Africa. Today, you can count on one hand the pockets of turbulence in Africa — there are no more than three, four, five countries at any one time. Now that’s a 90% area of stability, which is remarkable for a continent of that enormity.” Rague demonstrated with a map showing the magnitude of the continent, which could hold the areas of some of the world’s largest countries.

In part, this stability is due to Africa’s rising middle class. “Africa has one of the fastest growing middle classes in the world, and they’re finding that the middle class in Africa today is larger than the middle class in India,” Rague explained. “Instances of corruption still exist, but they are in decline because civil society and society itself has become much more vigilant. … The middle class, which is educated, has traveled the world and is aspirational, is demanding accountability and better political governance.”

Such strong demand also calls for supplies.

“Africa has one of the largest and fastest growing populations, and that results in migration from rural areas to urban areas, and that creates demand for goods and services,” said Rague. He detailed that in 1900, African cities were populated by approximately 2 million people. In 2007, that number was 400 million, and projections indicate that by 2050, it will be up to 1.4 billion. “You can look at it as a negative or look at it as a positive, but as a business person, you can only see opportunity,” Rague noted.

Mirroring this urban growth is Africa’s gross domestic product. In an analysis by The Economist, sub-Saharan Africa has been home to six of the 10 fastest-growing economies on the globe over the last 10 years. In the next five years, the average African economy is projected to surpass its Asian equivalent.

Asia is taking note. China is the largest of Africa’s emerging partners, with $93 billion in trade. “There has been a shift from dependence on grants and development aid to more foreign direct investment,” Rague explained. Where countries like Brazil, Turkey, Korea and India had little to no trade with Africa a decade ago, they’re now trading tens of billions of dollars.

With so much growth, why isn’t everyone investing in Africa? Experts addressed this and other questions in panels following Rague’s keynote address.

“I think the biggest challenge is that so much of what affects Africa is exogenous to Africa,” answered Stephen Murray, senior investment officer of Pan African Capital Group. “Africa right now is probably better prepared than it’s ever been to handle foreign direct investment, deal with foreign investors, provide exit opportunities for investors. It’s just that globally we’re still kind of in the middle of the hangover of the global financial crisis.”

Africa also bears the burden of an obsolescent image.

“If you look at the perception of Africa for most people, it’s outdated. They have this perception of war and famine,” commented Murray, but, “anybody who’s been to Africa sees the opportunity, sees the growing middle class, sees this continent rich in natural resources that the world is craving.”

That outdated perception is, in part, due to the tendency to consider Africa a single entity — in Rague’s words, “an anonymous continent.” Michelle Mfuni (MBA ’95), executive lead of strategy and innovation for Deloitte in South Africa, added, “When something bad unfortunately does happen on the west coast of Africa, it does affect South Africa, it does affect the whole market, because it is lumped together.”

Good news for investors with open eyes. As Kyle Newell, co-founder of Emerging Market Advisors, pointed out, “We like the fact that some foreign investors are scared to come in to Africa, because we’re making more money that way.”

“Don’t see it as a charity case,” warned Rague. “It’s got one of the highest IRRs (Internal Rate of Return) in the world, if not the highest.” Statistics like that make for a good response to investors preoccupied with Africa’s moribund reputation. As Newell summarized, “You just show them the numbers and it’s an easy sell.”

Rague’s parting words offered advice to investors: “You cannot wait for the market to be right for you to go in. The day you do that you lose. As they say, you blink, you lose. And Africa is at that critical inflection point where if you’re not in there today, you’ll have to pay a higher price to come in.”