Kenya is establishing itself as a hub for Asian companies with operations in Africa, says Johan Meyer, senior vice president of equity analysis for sub-Saharan Africa at Franklin Templeton.
“Kenya is very attractive to us because it’s on the east coast of the continent, an attractive position as a centre for India’s and China’s investment and interests in Africa. We see many companies setting up their operations in Nairobi, the capital city,” said Meyer in a recent article.
According to Meyer, there are a number of African countries with the potential to join a second generation of emerging markets. “The same crucial developments that [preceded] the arrival of investors in emerging markets in the 1980s are taking place in parts of sub-Saharan Africa today. Private sector growth has been increasing and financial markets have been opening up.”
He said that frontier markets (described as new or younger emerging markets) overall are where countries such as China and India used to be 20 or so years ago. Frontier markets are often at a much earlier stage of development than larger emerging markets and some have only recently opened to foreign investing.
Meyer also highlighted the potential that the Nigerian market holds. “This is a country that has been growing over the past 10 years at about 7% or 8% per year on average, in terms of GDP, and it’s one of the top 10 fastest growing economies in the world. This is a country that generates very little electricity on its own, so most of the electricity is provided by diesel generators. You can imagine the burden that this places on consumers, on companies and on industries in this market, and what potential, what opportunity this holds if this infrastructure constraint is lifted, how this can improve the functioning of this economy. It’s amazing the economy has managed to grow so fast with this type of issue.”
He, however, noted that there are still African countries, such as Zimbabwe, that continue to suffer. “Even though we have seen massive improvements in that economy, there still needs to be some political change before we can really start to get excited about those types of markets.”
Mark Mobius, executive chairman of Templeton Emerging Markets Group, notes that although frontier markets hold many opportunities, it is important to remember that the risks of investing in these countries are much greater.