Is Africa calling?
Since late last year, the South Africa market has been on a tear. The shares have almost doubled from their bottom at year-end, and they’re only 25% below their all-time high. Over the last 5-years it’s returned about 15% per year, a testament to the power of globalization.
But isn’t Africa just a resource play? Are oil and diamonds and tourism the sum-total of the African economy? And aren’t disease, civil strife, and corruption real threats to stability?
That’s only part of the story. Sure, as global commodities have gotten expensive the resources in the continent have become more valuable. But something deeper is at work. South Africa has solid infrastructure and a tradition of rigorous accountancy. But the real transformation is in some of the frontier markets that are just beginning to develop their natural resources—places like Botswana, Uganda, and Ghana. These countries are stable politically and are will soon become oil exporters.
While the resource development is crucial in the short term, the real growth opportunity comes from development of human capital. African entrepreneurship is just entering its earliest stages. The continent has been plagued by racism, paternalism, and corruption. Independence movements of the past were unfortunately tied to wrongheaded economic policies. But much of Africa has moved beyond that.
Ever since Vasco de Gama sailed around the Cape of Good Hope, Africa has attracted attention. Let’s hope this new wave of interest results in some real growth.
Douglas R. Tengdin, CFA
Chief Investment Officer
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