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AFRICA MACRO

ANALYSIS AND STRATEGY

INTRODUCTION Economic conditions in Africa began to radically improve in the early part of the last decade when commodity prices started rising sharply in response to strong demand from emerging market economies, particularly China and India. As a major supplier of oil and gas, as well as precious minerals and metals that are used across a wide variety of industrial applications, Africa has gained an increasing relevance in the global value chain. It is the mining and energy sectors that have become the defacto springboard responsible for Africa’s surging integration into the global economic community. The recent increases in economic activity throughout the continent are beginning to fuel an emerging middle class that is underpinning strong growth in the banking, retail, food production, and mobile phone sectors. Political conditions have improved to the point where war and conflict have diminished as compared to 20 years ago providing a more stable environment for foreign investment. As Africa continues to become increasingly assimilated into the broader global economy as a key supplier of raw materials for the world’s growing markets, the reduced political risk combined with improved economic conditions and an overall population of over one billion people, make it a compelling growth story for the astute investor. This is especially true at a time when the economies of the U.S., Europe, and Japan are stalling due to the global financial crisis. While the mining and energy sectors have provided the impetus to growth, African economies are maturing and expanding well beyond the “resource story” and are becoming more diversified as consumer spending becomes a major pillar of growth. Credit is being introduced into many markets through both traditional commercial banking sources as well as through micro-finance which is designed to provide loans to both consumers and businesses where credit has been scarce if it existed at all. Africans are now experiencing an increase in their disposable income that is driving private spending at a rapid rate. As disposable income continues to advance, opportunities will be created in telecommunications and technology, clothing, housing construction, and the consumer products sectors as citizens seek to improve their living standards and mimic the lifestyle of their counterparts in other emerging as well as developed nations.

and deepening. While still needing improvement, the rule of law is being strengthened. The banking sector is becoming more sophisticated as standards and practices are being brought up to the levels of the OECD nations. Many state owned banks have been privatized. Efforts have been made to recapitalize or eliminate weak banks. Interest rates are increasingly being set by market conditions rather than government fiat. Lending practices have improved. As further reforms are implemented and African countries continue to mature and evolve, the broader continent will continue to integrate in the global economy, thereby opening the door to further foreign investment. Africa is the last frontier. It is the last region of the world ripe for economic development. In this regard, it is following the path of Latin America and the Far East, which forty years ago were viewed as inhospitable environments for foreign investors. They suffered from many of the same ills that recently plagued Africa. Corruption was rife, coups and dictatorships were the norm, freedom of the press was restricted, poverty was widespread, literacy rates were low, foreign investment regulations were opaque, foreign exchange controls were pervasive, inflation rates were high, the manufacturing sector was tiny and consumer spending was weak. The prospects for Africa are similar to Latin America and Asia, whom were able to surmount these challenges and grow at astonishing rates that created huge returns for astute investors who were willing to take what was perceived as a great risk to enter these markets. The case with Africa rests on extremely high potential opportunity for investors who are willing to weigh the risks and conclude that the prevailing political and economic conditions are the most favorable they have ever been.

Throughout the continent, governments are taking steps to encourage foreign investment. While more needs to be done in this regard, the improvements that have been made in recent years are dramatic. Barriers to investment and trade have been reduced. Profits and dividends can now be more easily repatriated, restrictions on foreigners investing in the stock market have been relaxed and credit markets are growing Joab’s Technologies and Research, Natu Court Flat B.

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Equity Research in Africa, Like an Electric Train Africa is picking up, a True Emerging Market  

Economic analysis of Africa as a whole, as well as of particular countries and sectors, with special regard to their potential as investment...

Equity Research in Africa, Like an Electric Train Africa is picking up, a True Emerging Market  

Economic analysis of Africa as a whole, as well as of particular countries and sectors, with special regard to their potential as investment...

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