A Look at the new African Economy

The idea of China creating the $900 billion “New Silk Road” through a trade network reaching to Africa, is widely known to investors worldwide. This raises the question: why? How are the emerging markets in around the world developing to warrant such a mass scale project? Focusing on Africa, one of the targets of this infrastructure project, global business interest has blossomed.

On a pure geography perspective, Africa’s land exceeds that of China, Europe, and the US combined. The population of Africa is around 1.2 billion and the continent hosts thousands of languages and economic diversity. Compared to the rest of the world stagnating in growth, Africa’s population is forecast to double over the next 30 years, and is soon be the fastest-urbanizing region in the world, with more than 80 percent of its population growth over the next two decades will occur in cities

The continent currently has four hundred companies that generate over $1.0 billion in revenues, marked by significant growth and higher margins than their global peers. Yet, almost half of these large firms are based in South Africa. Additionally, African companies tend to be smaller than their peers in other emerging markets. This impacts the scale of their operations, and analyst project that the share of large companies’ revenue is only a third of its’ potential. Meanwhile, small and medium-sized enterprises (SMEs) are responsible for 77% percent of all jobs in Africa and constitute as much as half of GDP in some countries.

For investors to consider positioning in Africa, exposure to high-growth cities/regions is advised. Companies are recommended to ride strong industry trends, such as mobile adoption and digital technology.