The Opportunity
Friends,
Welcome to African Market Insights! As I travel the continent of Africa over the next year to understand the investment landscape, I'll be using these emails to communicate the opportunity set. You can find all of them on African Market Insights and you can also follow me on LinkedIn and Instagram for additional thoughts and videos.
Let me quickly address MY WHY: After spending the last 4.5 years at Goldman Sachs, I decided to leave Wall Street, both because I felt God calling me use my gifts and skills to love and serve those in developing countries AND because I believe that Africa will be the greatest investment opportunity of our lifetime.
Let me lay out the opportunity set for you (see video as well):
One of the first lessons about investing that you learn on a trading desk is that timing is just as important as being right. Every country and continent has a pivotal time on the global stage, and while the last few decades belonged to China and India, the next few decades belong to Africa.
Five reasons: People. Market Size. Macroeconomic Trends. Structural Shifts in the Capital Markets. Valuations.
People - At the time of this writing, I've now spent time with over 100 people across 4 countries in Africa, and I can tell you they're really sharp. Thanks to investments in education, the youth literacy rate in Sub Saharan Africa has jumped ~14 percentage points since 1990 and many countries now have literacy rates that exceed that of the US. Furthermore, with an average age of 19, and the youngest population in the world, the next generation of African's are just getting to the age where they will be able to make significant leaps in advancing economic development. And perhaps most importantly, they're hungry - you can feel a spirit of the "American Dream" on the continent - a feeling that the future they dream of is within reach.
Market Size - 9 of the 20 fastest growing countries are in Africa and their population of 1.5 billion people is expected to grow by nearly 100% over the next 25 years, while every other continent is only expected to grow by between 5-30%. Markets are all about producers and consumers and Africa will create far more producers and consumers than any other continent over the next several decades.
Macroeconomic Trends - In the past, one of the greatest risks investors faced when investing in Africa was political risk. And while there is still some political risk, with varying degrees based on the specific country, much of the leadership in Africa has shown a desire to create an environment friendly for businesses and attracting foreign investment. Both the signing of the African Continental Free Trade Area (AfCFTA), the largest free trade area in the world, as well as the AU's admittance into the G20, reflect these ambitions.
Structural Shifts in the Capital Markets - The greatest investors in the history of the world had one major thing in common: they saw the big underlying shifts in the markets and they didn't miss the train. There are two shifts going on in the capital markets that I believe will have some of the greatest implications for the global capital markets over the next few decades: 1) The democratization of the private markets and 2) the impact of blockchain and stable coins to create a borderless digital transaction world. As Congress works to eliminate the accredited investor clause, fintech companies are working to democratize the ability to invest in private equity. I believe that in 10 years, it will be almost as easy to invest in private companies as it is to invest in public stocks today. This will dramatically increase the pool of capital that can flow towards African businesses. Separately, blockchain technology and stable coins have the ability to revolutionize the way that global investment and transactions are done. By essentially creating a borderless digital world, this technology has the potential to significantly reduce currency risk and the time it takes to process investments, remittances, and transactions overseas. I believe Africa stands to be one of the greatest beneficiaries of this technology.
Valuations - Africa is the most overlooked investment opportunity in the world - we discussed that nine of the twenty fastest growing countries are in Africa, but the staggering part is that only 0.5% of Private Equity and Venture Capital flows there. Because the supply of capital does not meet the demand for it, valuations in many sectors/geographies are very low. The best investors are those who find dislocations between perceived risk and actual risk and invest between that dislocation. Africa is a very diverse place with 54 countries, but because we often lump Africa together as one place, the geographies that have much lower actual risk, still have a very high perceived risk, which suppresses valuations.
In summary - the complexity of investing in Africa and lifting nations out of poverty is real and there are lots of things that can go right and wrong. But, the opportunity set is real, big, and the train is starting to move. The future will belong to those investors willing to invest today.
Thanks for taking the time to read "African Market Insights." As we spend the year traveling the continent to understand what the opportunity set really is, we invite you to subscribe and join the journey and follow us on LinkedIn and Instagram, but also to reach out if you have questions. We are investment professionals with a passion for loving people and impacting their lives and would love to get to know you!