Contrary to popular opinion, the best investment bet that you can make in 2011 is in Africa. You wouldn’t know it if you turn on a TV or read a newspaper, since U.S. and European media focus relentlessly on areas of unrest and instability, but the reports beyond the front page tell a very different story. Record GDP growth, the rise of homegrown corporations and increased foreign investment are all evidence of Africa’s rapid economic progress and remarkable potential.
I speak from experience as CEO of SEACOM. We were pioneers in bringing broadband access to eastern Africa and we are now driving the development of an integrated communication culture across the continent.
Misperceptions about GDP and growth rates in Sub-Saharan Africa cause many investors to write off the region. That is a big mistake. Africa has the third fastest growth rate among regions of the world, and many countries are experiencing exceptional growth. For example, Ghana has the second fastest GDP growth in the world at 14%, with Eritrea and Ethiopia ranked fourth and fifth respectively.
Underpinning this growth is an emerging class of corporations expanding across the continent. A new report, Pioneers on the Frontier: Sub-Saharan Africa’s Multinational Corporations, released this week at the World Economic Forum on Africa in Cape Town, highlights the success of SEACOM and other African-based companies that are making their mark across the continent.
The investment community should pay close attention to this new class of companies spanning a variety of industries. Sub-Saharan Africa’s multinational corporations have firsthand knowledge of local conditions, which often means the difference between success and failure when doing business in Africa. They are working more closely with their governments to accelerate local development and further improve the investment climate. These corporations can serve as local partners, suppliers, and purchasers of goods and services, as well as providing solid opportunities for investment. The expansion of these companies requires a burgeoning financial services industry, as well as connected exchanges and public debt markets.
To date, these opportunities are being supported by African based financial services, while being largely ignored by the greater financial markets. To me, this seems to be an opportunity missed. Many possibilities exist across the continent where returns outweigh perceived risks, such as mezzanine rates for senior debt financing.
Our story at SEACOM has been organically African: our debt and equity came from African markets and our demand is driven by African GSM operators, ISPs and local telecommunication companies. We’ve entered new markets by driving win-win partnerships to collectively grow a nascent data market, replacing a previous reliance on expensive satellites for bandwidth. And the future looks bright, as consumer demand is projected to continue rising. The growth of the middle class has brought Africa to a tipping point, where demand from consumers with increasing expendable income outstrips the supply of products and services. This presents a tremendous opportunity for business expansion and investment.
Of course, Africa is not risk-free: current policy barriers still restrict expansion in some cases. However, the spread of democracy is gradually opening up entrepreneurial opportunities and economic integration is beginning to eliminate barriers to cross-border commerce. Companies entering Africa now are experiencing the benefits of first-mover advantage including high profit margins, access to local resources and unfettered brand recognition.
Over the next decade, Africa is projected to continue experiencing high growth, greater integration and improved policy environments. Now is the time for U.S. and European companies to start investing, or they will miss the wave.
Brian Herlihy is CEO of SEACOM, a Mauritius-based company that provides communications bandwidth across Africa, and a member of the Initiative for Global Development’s Frontier 100 network of African, South Asian, U.S. and European business executives working to increase investment and reduce poverty in Africa.