East African Investment
Trends leading to higher returns for East African portfolios.
The purpose of this paper is to be less comprehensive but more general about the trends that are developing in the East African Community expected to contribute to above average investment returns in both the short and long-term. While the information provided serves as a base of knowledge and introduction to the region, there is an expansive amount of information related to the topics below through the World Bank, the African Development Bank Group, African Investment Associations, and numerous periodicals. Specific information on privatizations is available at the Multilateral Investment ...view middle of the document...
Throughout this paper many trends will be addressed aiding an investor in gaining comfort with the region and familiarizing oneself with the economic climate and trends supporting attractive investment returns. The four main areas of analysis addressed below are the people; if there is no consumer class, strong markets are unlikely to develop and grow, the physical infrastructure; it is vital to be able to move goods and information across a country to promote commerce, the political climate; investors should be wary to invest in a region with rising political tension to minimize the risk of loss, and natural resources; having something of value to trade with other nations is an obvious positive.
A quote from a leading African investment professional who represents U.S. capital across the entire continent shares this insight, "One set of factors in particular makes the continent a unique and attractive region - and that is that, economically speaking, as a market for products, as an overseas destination for outsources manufacturing operation, and as an investment destination for institutional portfolio capital, Africa is the world's least-explored region." What has been preventing this region from being explored? Adverse political climates and highly segmented populations among other factors have limited collaboration in the past 40-60 years of colonial independence. As these barriers break down over time, the prudent investor will be well positioned to take advantage of developmental forces sure to benefit portfolio returns as Africa reverses their historical divergence from the global economy.
The people within the EAC are important to understand as these are the individuals who will be participating in the economy on a daily basis. General economic and population measures are listed in the table below:
EAC Population Statistics |
Total Population | 130M |
Rural Population | 82.20% |
Urban Population | 17.80% |
GDP per Capita PPP | $1,084.00 |
GDP per Capital | $558.00 |
130million potential consumers is appealing for any enterprise whose livelihood resides in the ability to distribute products. As is apparent in the table, the population is overwhelmingly rural with only 17.8% of the population living within cities. While low proportions of urban populations are highly correlated with low per capita GDP, the rate of urbanization for the EAC is an impressive 4.8%. In contrast to South Africa’s (the most developed country on the continent) 2.5% rate of urbanization, the EAC is worth noting for its likelihood to create more consumers since the average wage of an urban worker is three times that of a rural wages. The cost of living in cities is higher but the increase in wage more than offsets the increased cost creating discretionary income for which to save, remit back to the rural villages, or spend on consumables. Each use of increased income is favorable in terms of stimulating economic activity according to...