Africa: The Last Frontier
Charles Sizemore | Aug 03, 2012 12:15PM ET
If you are the adventurous sort and happen to find yourself strolling the streets of Tripoli, Libya, you may smell the familiar aroma of cinnamon buns baking. U.S. bakery chain Cinnabon opened a new café in downtown Tripoli, making it the first American franchise to set up shop in the country. You can bet that more will follow.
With many of the traditional East Asian and Latin American emerging markets now comfortably developed into middle-income nations, investors and entrepreneurs are shifting their attention to the next big growth market -- Africa.
Not Bad Growth Forecast
In a year in which growth forecasts have been slashed across the globe, Africa has been surprisingly resilient. Meanwhile, the IMF forecasts that Africa’s growth rate will be 5.4% this year and 5.3% in 2013. For a continent best known for its chronic civil wars and HIV epidemic, that’s not half bad at all.
The African continent has a population of over a billion people, which makes it bigger than the United States and European Union combined. But before we get too excited, remember that the entire lot is not exactly queuing up to buy iPads and frappucinos. The World Bank estimates that 47% of Sub-Saharan Africans live on less than $1.25 per day. Living standards are higher in North Africa, though it, too, is certainly no stranger to poverty either.
Never Too Poor To Prosper
Before you write Africa off as being too poor to be worthy of consideration, consider that India, which has been a favorite emerging market destination for years, has nearly comparable levels of poverty. The World Bank estimates that 36% of South Asians live on less than $1.25 per day. Also, remember that China had similar levels of poverty just a few decades ago.
African Plays
Investors looking to invest in the rise of the African consumer can go about a couple different ways. The iShares MSCI South Africa ETF (SBMRY ), which is the second largest beer brewer in the world. SABMiller gets roughly a third of its profits from Africa and that number should only grow with time.
As a note of caution, the U.S. ADR shares are thinly traded, so make sure you use a limit order. Investors with access to foreign markets may prefer to buy the London-traded shares.
Disclosures: Sizemore Capital is long DEO.
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