The hottest frontier …When you are trying to keep a retail outfit afloat amid hyperinflation, it helps to have a sideline. "We had a business selling crocodile skins to Hermès and Gucci for shoes and handbags," says John Koumides, chief executive of Innscor, a conglomerate based in Zimbabwe's capital, Harare. The currency earned from this exotic export was a lifeline for the firm's other arms, including its SPAR stores, when Zimbabwe's shops were short of stock in 2008 as its currency collapsed. – Economist
Dominant Social Theme: Africa is in. This is one sizzling hot country.
Free-Market Analysis: We've run a number of articles now explaining the African meme. Comes now The Economist (again) to reinforce our perception on this matter.
Hopefully, dear reader, you see what we see by now. The globalists are at it again, setting up another continent-sized miracle just the way they did with China and Japan – similar operations, in our view.
The methodology is both powerful and direct. The idea is that the US can lay off its dollar reserve debt on Japan … or China (or Africa) In return for purchases of hundreds of billions or even trillions, that the US directs in consumer buying in the direction of the country (continent) involved.
The part of this "swap" that doesn't work so well has to do with the necessity of central bank money printing. In both Japan and China, central bankers went to work printing the cash necessary to build the factories and plants that would satisfy US consumer demand.
But after a point all the money creation and plant building ended up exhausting US consumers and distorting the economy of the producing country. China is suffering from enormous production-distortions and Japan still hasn't recovered from its 1980s industrial binge some 20 years later.
Now it's Africa's turn to create a "miracle." We can see the dominant social themes beginning to line up. The steady drumbeat of optimism regarding Africa is being presented regularly by the mainstream media. The articles in the financial press (like this one) are the ones we notice more. Here's more:
Africa's equity markets are hot, with investors attracted by the sub-Saharan region's GDP growth rate of more than 5% over the past three years. The main markets in Nigeria and Kenya have risen by more than 50% in the past year. Over the past decade Africa supplied six of the world's ten economies with the fastest growth. By 2020 more than half of African households will have enough income to splurge some of it on non-essentials, according to McKinsey, a consultancy. Furthermore, more than half of Africa's population is aged under 20. Within three decades it will have a larger working-age population than China.
But Africa is short of savings and capital. That creates an opening for rich-world investors seeking a better return than is available at home. North Africa, tied to Mediterranean trade, is fairly well developed and is seen by some as a separate investment proposition. So is South Africa, the continent's biggest economy, which has a slower growth rate than most of its neighbours and more mature consumer and financial industries.
The real source of excitement is the "frontier markets" of sub-Saharan Africa. "This is where the flavour is," says Thabo Ncalo, who manages an Africa Fund for Johannesburg-based Stanlib. Small investors looking for a taste might choose to buy a stake in a mutual fund or one of the exchange-traded funds that mechanically track an index of frontier-market stocks.
Fund managers are mindful of the liquidity problems that forced the closure of New Star's Africa Fund in 2009 barely a year after it was launched. Of 200-odd shares listed on Nigeria's stockmarket, the largest of the frontier markets in sub-Saharan Africa, perhaps two dozen are liquid enough to make mutual-fund managers feel truly comfortable.
A handful of big consumer firms that have been in Nigeria for a long time, such as Unilever and Nestlé, are listed locally and are liked by foreign investors. A local favourite is UAC, a food company with interests in paint and property, which has doubled in value in the past year. Its Gala sausage rolls are a popular snack and it is the local partner with Innscor's fast-food outlets …
Investors in Africa are buying a big-picture story of progress towards a formal and regulated economy with stable politics, the rule of law, independent central banks and stricter accounting rules. That prospect is brighter than it was. Nobody can guarantee that future progress will be in a straight line. But given the troubles in large parts of the rich world, many will feel there is a lot more to gain than to lose.
Pay special attention to this last paragraph, dear readers. Did you EVER think that an investment in Kenya or Nigeria might be seen as an antidote to the "troubles in large parts of the rich world"?
In another time and place (and some other magazine than The Economist) such a statement might be considered satire.
In any event, Daily Bell elves have spent time in Africa and the Middle East, especially in Nairobi, Kenya, which is the proverbial ground zero for this new – and quasi-fictional – Africa. We've pointed out as well in several articles that right next to downtown Nairobi exists a terrible slum of over one million people and that many residents in and around Nairobi live on perhaps two dollars a day.
Nairobi itself contains few industrial enterprises of significance, from what we can tell, and it might not be an exaggeration to say that the vastness of the entrepreneurial effort there revolves almost to a large degree around cell phones. Just as first the Japanese and (now) the Chinese are poised to take over the industrial world, so Africa, it would seem, is due to be hyped to the skies over the next decade.
In this article we note a differentiation being made between Kenya, Nigeria (and Zimbabwe!) and the rest of Africa – at least as regards stock markets. It could be that one strategy that will be used to propound Africa-as-Miracle is to separate out several tiers of African "opportunity." In this case, Kenya and Nigeria would be seen as the blue chippers when it came to investment opportunity and the "safest."
Do you believe it?
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