Book Review: Africa The Ultimate Frontier Market
I prefer to find investments in out of the way places, this means small niche areas of markets, and sometimes out of the way markets in general. When I heard about a book pertaining to African investing I knew it was something I had to read.
Most investors don't have a very positive impression of Africa, at best it's the wild west, at worst it's lions, zebras, and people living in mud huts. The author stated up front that the purpose of his book was to put those misconceptions aside and show Africa's potential. While the continent makes the news fairly regularly for tragedy very few people are talking about the promise the future of the continent has. David Mataen set out to change that by writing a purposefully optimistic about the future in Africa.
The book is broken into three major sections, the first describes what the author titles megatrends, the second are the enablers for the megatrends, and the third are areas of opportunity.
Megatrends are issues such as rapid urbanization, population and demographic growth, growth of credit, capital market development, and many others. Megatrends can sometimes be described as problems for Africa, but Mataen is able to cast a positive light on the issues. I loved this section of the book, I felt like it changed my worldview of Africa.
Mataen devotes the second part of the book to what he titles "The Enablers". These are the issues that need to be solved to both fulfill the megatrends, and also create a ripe environment for investment opportunity within Africa. These are things like infrastructure, technological networking, human resource development, and reforms to the business environment.
An example of an enabler is the history of poor education for rural Africans. The book talks about why this was the case and how it's changing, and what that means for business. One area Mataen focused on was infrastructure, both physical transportation (roads, railroads, cars) and digital. Africa has an advantage in that they're developing after the rest of the world has experimented with the best way to do things and learned from mistakes. This means Africa jumped from almost a non-existant telecom network to a ultramodern wireless system. Transportation networks are being built with intermodal and mixed use in mind meaning no costly retrofits at a later date.
The last portion of the book describes different industries and the opportunity for investment or development in each. Areas such as transportation, banking, agricultural, logistics, retail and manufacturing were covered. This section of the book was the most actionable, but needed the context of the first two sections to make sense.
I think to many the thought of African investing means finding businesses catering to the growing middle class. While this is certainly true it seemed to me opportunity exists in many other places that could potentially be much more lucrative. For example Africa has a power problem, they don't have enough of it, they also have a water problem, the water isn't where the people are. One solution is to build hydroelectric dams both creating electricity and providing a source of water. Currently 3% of the continent's hydroelectric capacity is being used, this is an opportunity for a construction firm, or engineering firm such as Condruil a Portuguese firm with extensive African operations.
A second takeaway was that logistics and shipping will be vital as the continent grows. In most of the action chapters it was mentioned how there's a lack of warehouse space for agriculture, shipping, storage, and manufacturing. This seemed like such a simple solution for so many problems. If I had the capital and wherewithal I would be building warehouses in major Africa cities tomorrow.
Who should read it?
The target audience seemed to be an entrepreneur or a divisional manager who was looking to physically expand or start a business in Africa. There was one chapter with a high level overview of African capital markets, but at this point they're very immature and underdeveloped. The best investments in Africa are direct investments. The book spoke directly to direct investors.
If you're a fund manager looking to invest in Africa, an entrepreneur, or an executive with African expansion ideas I'd highly recommend this book.
As an outside passive minority investor there wasn't that much actionable information in the book. It did pique my interest enough to look at some African exchanges for cheap stocks. Before opening a number of accounts across Africa I think I'm going to target European companies with African operations.
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