Moving China Out of Africa
Mary is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Investing in Africa is normally thought of as an extreme alternative investment, something reserved for the Chinese. However, more and more African nations are starting to warm to the idea of capitalism and are growing dissatisfied with China’s dominant presence. This leaves an opening for the alternative investor not afraid to assume some risk for the potential growth and profits that exist there. South Africa was the last country to be added to the BRICS and it still carries value as a growth investment. But there are other countries such as Mozambique and Nigeria that are emerging as potential investments.
Analysts are predicting continued Chinese investments in Zambia and the Congo. China is not just a driver of prices in Africa. It is also the continent’s biggest explorer and biggest investor. Africa might just be in the middle of a historic shift away from the U.S. and Europe toward China and Asia. Chinese investment in Africa has already surpassed that of the U.S., totaling $20 billion. China is currently building 1,900 miles of rail lines in the Congo and a highway that will link the copper belt with the capital 1,100 miles away.
Although, there is some controversy surrounding China’s presence in Africa. Particularly in the labor markets. Chinese companies heavily rely on Chinese instead of local labor. This has created some distance between Chinese companies and locals pushing for their own capitalism. The recent winner in Zambia’s presidential election campaigned against further Chinese economic penetration into the country. This type of opposition leaves an opening for the U.S. and other regions to gain more steam in Africa.
Wal-Mart (NYSE: WMT), the world’s biggest retailer, is well aware of the fact that African consumers are underserved. The company recently purchased a 51% share of South African retailer Massmart for $2.4 billion. The company sees the investment as a springboard for entering high-growth markets throughout Africa. 20 cities in Africa have populations that exceed one million. Rio Tinto (NYSE: RIO) and Vale (NYSE: VALE) are developing vast coal deposits in the center of Mozambique. This type of activity is breeding predictions that Mozambique could soon absorb investments two times greater than GDP.
When most people think of Africa, to this day they still picture starving children and refugee camps. However, the investor will realize that capitalism is alive and well in Africa. Many countries have adopted business-friendly policies and there are a wealth of investment opportunities stemming from an emerging middle class. Extractive industries remain the dominant sectors of foreign investment. However, there is growing attention toward tourism, construction, consumer goods, telecommunications, and financial services. The International Monetary Fund expects Africa to grow by 5% this year.
The Market Vectors Africa Index ETF (NYSEMKT: AFK) portrays the shift in industry taking place in Africa. Nearly half of the fund’s top holdings come from the financials sector. South Africa and Nigeria make up the largest percentages as pertaining to country exposure. Investing in Africa is not for the faint of heart. This type of investment does come loaded with risk, but the profits are abundant.
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