Africa...a growth engine?

The stage is set for Africa. The continent hosts the world’s greatest sporting event next week and seems to be the continent that everyone loves to talk about these days.

On November 1, 2008 we were going through the financial crisis…take yourself to that time. Lehman Brothers had gone bankrupt, AIG was teetering, people were expecting financial Armageddon. It was the end of the ‘Old’ world as we knew it. On that day, I felt compelled to write about the five themes that I believed would be the drivers of growth (and profit) for the next 2 decades: food, security, health, Africa, and water. 1.5 years later, let see how well I did. Since Africa seems to be a hot topic these days, I inserted the paragraph that I wrote at the time:

Here is an excerpt from my blog on November 1, 2008:

“Africa: Bottom line, things can't get any worse. It might seem like Armageddon is approaching the Western world - but it has been on Earth for the last few hundred years...in Africa. The continent was raped by the Europeans during colonization and sloppy seconds were divvied up by Europe's mighty for more pillaging. Today, Africa is festering with AIDS, political unrest, poverty - among other things. Much of the population is destitute and the only place to go is up. For the first time (ever), drug companies will be investing more marketing in Africa than the US. The US has always been the biggest market, but drug companies see Africa as a future lucrative market. With firms seeing their usual markets implode, they will undoubtedly start looking to invest in places that are fresh and have the greatest potential for upside. Africa doesn't have a credit crunch because Africa doesn't have credit markets! Their problems are solvable, their problems are ones that we understand - these were the very same problems that Western society fixed earlier: political unrest (WWII, WWI, European revolutions), AIDS (epidemics such as plagues, and other illnesses), poverty (Europe, Russia). The current issues in Africa can be solved with a little know-how and money (both of which Asians, Americans, and Europeans have). The current economic problems in North America and Europe do not have a viable solution since no one knows what the hell is going on - it isn't a tangible issue that can be solved via round table discussions, medicines, or money. You will see that African investment will increase and first-movers will have the special honour of helping rebuild that continent into a large consumer based market that can replace the floundering Americans and their non-saving ways. The Americans built the US on the back of the African man, and now they will try to build the US (again) on the back of the African man - except this time it might help Africa prosper as well. The other benefit of Africa is the vast amounts of land they own which are currently being farmed with basic techniques -- add some technology, fertilizer, and operational efficiencies and a farm producing 1 tonne of corn may begin to produce 4 tonnes of corn. Recently, Daewoo (a large company in Korea) leased 1.3million acres of farmland in Madagascar. They will use this 99 year lease to produce corn for their country. Kuwait and Saudi Arabia are in similar talks with Sudan, Ethiopia, and South Africa”.

Welcome to the party everyone.

Now that I am working in Cairo, I am reading up on all the reports about African growth. What this continent means to multinational corporations. Here are some interesting points from a recent McKinsey study:

As many as 200 million Africans will enter the consumer goods market by 2015. 200 million? 200 million more consumers being able to buy everything from Jockey underwear to Pringles potato chips…Proctor and Gamble’s wet dream.

Infrastructure spending is rising faster than the world as a whole. Africa is planning spending money to build new roads, bridges, power plants, and sewers – everything that makes our cities in North America livable.

The African continent has more than 25% of the world’s arable land. Future breadbasket anyone? Undoubtedly as China, India, and the Middle East look to secure farmland to feed their populations, Africa is going to be top of mind for them.

Yes, the above points are fine and dandy (and tie with my initial thoughts back in 2008 – thanks McKinsey). However, all of the above is a crapshoot if we cannot solve the following issues first: food, water, security, and health. (My other four factors).

What good are consumer market, farmland, and infrastructure if one cannot ensure stable food supplies, clean water, security, and health? How do we actually get workers into Africa to spend time to build all of this? I mean, you can’t even go to most countries without getting malaria tablets. It is common news to hear about muggings and kidnappings. Sure we can go build huge dams and bridges and employ Africans in factories, but without being able to provide for Maslow’s basic needs – then all of it will be in vain.

For the couch investor out there – I would seriously look at companies that are world leaders in water treatment, food, security (commercial/residence), and healthcare. I don’t have any money or I would be investing in the following:

1. Nestle
2. Veolia
3. P&G
4. Unilever
5. Brinks
6. G4S

I’m sure I’m missing a bunch of good European and Chinese companies. But you get the idea.

Africa is only going to be the growth engine we hope it to be, if and when we figure out how to travel there without having to take 18 different injections and drink water from the taps.