Nigeria, Egypt and Ethiopia offer some of the best opportunities for retailers looking to invest in Africa, Rand Merchant Bank said.
The Democratic Republic of Congo and Libya rank fourth and fifth and South Africa 15th, the Johannesburg-based investment banking unit of FirstRand Ltd. said in a report released to clients today. The list was compiled using criteria such as population size and growth rates, gross domestic product per capita and urbanization rates.
“Those are probably the most favorable prospects for retail investors, but they aren’t the only markets available,” Nema Ramkhelawan-Bhana, an Africa analyst at RMB, said in an interview today in Johannesburg. “In the next few years, you could see that changing as your income dynamics change.”
With about 173 million people, Nigeria is Africa’s most populous nation and has the continent’s biggest economy. McKinsey & Co. said in a July report that the West African nation could be one of the world’s top 20 economies by 2030 with a consumer base exceeding the current populations of France and Germany.
Disposable income in Africa will probably grow at an average rate of 5.5 percent a year until 2030, the bank said in a report on investing in Africa. By then, the continent’s highest-performing cities will have a combined purchasing power of $1.3 trillion, compared with $750 billion currently, according to RMB.
While population trends are a key driver of opportunities for retailers, large-scale urbanization pose risks in terms of social problems and unemployment, said Celeste Fauconnier, an Africa macro strategist for RMB.
“The risk of urbanization is that your slum areas are dominant” within fast-growing cities, Fauconnier said. “Africa’s got the youngest population in the world, which is great for productivity, if they had jobs.”
Other negative short-term factors for African markets include political risks, vulnerability to changes in commodity prices, income inequality, weak institutions and gaps in infrastructure, RMB said. Low government spending on education and skills are among key risks for the continent’s future.
“We don’t want to present this as an unrivaled proposition,” Ramkhelawan-Bhana said. “Africa is 54 distinct economies and there is abundant opportunity. But be very cautious of the risks, and there are numerous risks.”
While South Africa ranks outside the top 10 as a prospect for retailers, Africa’s second-largest economy remains the most-attractive country for overall investment, according to RMB.
via@Bloomberg