Sub-Saharan Africa didn’t suffer as much in the 2008 global financial crisis as the rest of the world, since it lacked both large banks and sophisticated financial infrastructure, and its levels of consumer and government debt were relatively low. Since then, Africa has enjoyed a strong recovery, largely because China, hungering for commodities and natural resources, pumped massive amounts of investment into its mining industry and transport infrastructure.
In 2011, Africa was the third largest destination for Chinese direct investment after Asia and Europe, with inward investment totaling $90 billion. China is now the largest lender to Africa, surpassing the World Bank and various Western nations, as well as its largest trading partner. Bilateral trade reached $160 billion last year, a new record.
China’s drive into Africa is probably the reason why seven of the world’s 10 fastest growing economies are now African. The Atlantic Monthly ran an article in May titled “The Next Asia is Africa.” Actually, “the next Asia” has already arrived: South Africa has officially become a member of the BRICS club of large, rapidly growing emerging economies, which previously included Brazil, Russia, India and China.
However, says Robert Scharar, fund manager of the Commonwealth Funds and an investor with some two decades of experience in the Sub-Saharan region, China’s involvement and wealth of natural resources are not the main reason why the outlook for Africa is brighter than it has been in years. Scharar is bullish on Africa’s overall economic development, not merely as a commodities exporter. Indeed, a number of economists and investment professionals are predicting that a major proportion of global economic growth in nearby decades will come from this continent, even though by some measures it is still an economic and political basket case.
Last November, Commonwealth Funds started its Africa Fund (CAFRX), which invests in shares of African companies as well as foreign companies with at least 50% of revenue derived from Africa or holding 50% of assets there. The fund is not focused on resource companies, which make up the bulk of traditional portfolio investment on the continent and dominate African stock indices. Similarly, even though the Africa Fund is understandably heavy on South African companies, since South Africa has the largest economy and the most developed financial markets in the region, it is paying close attention to players throughout the continent.
In the final analysis, national economies are driven by demographics. It has certainly been true in recent decades, which saw the rise of the world’s most populous nations, namely, China, India, Brazil and Indonesia. At the same time, countries and regions with declining populations—notably Japan and Western Europe—are experiencing economic stagnation and decline. Africa is now the fastest growing region in the world. The population of the sub-Saharan countries stands at 850 million, and is expected to double by mid-century.
An important factor, according to Scharar, is that this population is young and that the new, post-colonial generation is now coming to power. It is more open, more globalized and more savvy about the ways of the world. Scharar sees political changes and more emphasis on pro-business culture and economic development in an increasing number of countries.