It's so cliché to say that Africa is a wild continent. But the fact is that it's true.
It's also true that 11 of the world's 20 fastest growing economies are in Africa. That fact alone should get you digging a little deeper into Africa's investment potential.
For many, the first question they need to overcome is this: Is investing in Africa worth the risks despite the growth potential?
You should know by now that the answer for me is yes, absolutely … with the caveat that one must know the risks. That's why I try to highlight them for each Africa-based company I recommend.
For the most part, these risks span the entire spectrum common in frontier markets, which are often incredibly poor on a per capita basis but incredibly rich in natural resources on a national level.
We tend to hear more about the negatives than the positives, since this is what captures the media's – and our own – attention.
It's far more fascinating, albeit disturbing, to read about armed conflict in Rwanda than the fact that Kenya's Nairobi Securities Exchange is up 29% thus far in 2012.
Don’t me wrong, there are a lot of issues in Africa, and many that would exist with our without growth. But the positives for investing in Africa are overwhelming, in my opinion.
It is the world's fastest growing continent, where populations are expected to double by the middle of this century. The African Development Bank projects that population growth will lead to an explosion of the middle class, which will help consumer spending expand threefold – to $2.2 trillion – by 2030. McKinsey and Co. states that Africa already has more middle class consumers than India.
The International Monetary Fund's (IMF) World Economic Outlook, published in October 2012, claims that 11 of the world's 20 fastest growing economies are in Africa. In order of increasing estimated cumulative average growth (CAGR) during the next four years (2013-2017), these are:
#20: Rwanda: +8.23%
#19: The Gambia: +8.35%
#17: Côte d'Ivoire: +8.63%
#16: Ghana: +8.92%
#13: Zambia: +9.24%
#12: Mozambique: +9.29%
#11: Republic of the Congo: +9.31%
#8: Libya: +10.38%
#3: Guinea: +16.27%
#2: South Sudan: +19.85%
#1: São Tomé and Principe: +31.50%
While resource exploration and development are the leading growth drivers, construction, tourism and other services are contributing a larger share of many countries’ GDP figures. And that’s helping to attract foreign investment from around the globe.
Contrast this to potential recession here in the U.S. and much of Europe, and the case for at least some investment in Africa becomes even stronger.
I prefer to invest in individual names, but for those looking for broad-based Africa exposure in one easy and relatively low-risk vehicle, take a look at the Market Vectors Africa Index ETF (NYSE: AFK). It is up more than 23% thus far in 2012. And given the growth potential across much of the continent, the ETF is well positioned to deliver a healthy return again in 2013.