KEY POINTS:
For many years, large parts of Africa have been virtual no-go areas for foreign businesses.
Poor corporate governance, unreliable economies and political unrest have deterred all but the most committed investors.
This is no longer the case. An economic revolution caused by the booming global demand for commodities means the corporate world can no longer afford to ignore fast-developing nations such as Nigeria, Botswana and Ghana.
Soaring stock markets, stable economies and good levels of overseas investment have improved the fortunes of many countries, which have been able to use part of their new wealth to fund internal consumer booms of their own.
Perceptions of sub-Saharan Africa have certainly shifted, says Innes Meek, director of CDC Group, a funds investor which has assets worth about £2 billion ($5.4 billion) in the world's poorest countries.
"South Africa has always been a magnet for business but other economies are now attracting interest," he says.
"Nigeria, for example, has a substantial economy, backed by oil, and a large population which provides opportunities for businesses to grow."
Bryan Collings, managing director of Hexam Capital Partners, sees several reasons for the turnaround in fortunes.
"A lot of politically stable countries endowed with resources such as oil and commodities have succeeded in strengthening their reserves, stabilising interest rates and providing a much better environment in which to operate," he says. "They have also benefited from the development of capital markets in the region.
"We've had greater liquidity over the past five years, as well as cheaper money and a reduction in risk aversion.
"This means money has found its way into new markets, and Africa has definitely been a beneficiary of these moves."
As well, the fast-developing sub-Saharan nations are looking attractive on a relative basis.
"Fifteen years ago, places like Brazil and Mexico were still developing so money was being allocated to those markets rather than Africa," Collings adds.
"As these places, as well as the likes of Poland and Hungary, have started maturing and levels of competition have increased, investors have started to look elsewhere."
This assessment is reflected in the performance of the sub-Saharan stock markets, which outperformed the likes of South Africa during the first six months of this year.
The sub-Saharan African markets - excluding South Africa - rose by 38.2 per cent and were not affected by the March correction, which affected several rival emerging markets, or the Nigerian presidential elections a month later.
The rise compares with a 10.2 per cent rise for the MSCI Far East index and a fall of 5.5 per cent in the MSCI Eastern Europe index.
Meek sees potential to enjoy rich rewards from investing in Africa.
The combination of rapid development potential and the vast populations means that well-run companies can deliver fantastic returns.
"If you can score a hit in Africa, it can turn out to be a good one," he says. "We were early investors in Celtel [the pan-African telephone business] and that turned out to be a terrific investment as we made five times our money."
But James Thomson, manager of the Rathbone Global Opportunities Fund, has words of caution.
He sees many reason businesses and investors should approach these countries with extreme caution.
"I am wary of investing in Africa for a number of reasons," he explains.
"These include the lack of transparency in some countries, questions over financial stability and whether there is a level playing field for all investors."
Another serious concern is the continent's power supply problems. More than half of sub-Saharan nations face crippling electricity shortages, and blackouts are becoming increasingly common.
"In many ways Africa is a victim of its own success as the higher-than-expected GDP growth has put a huge strain on the electricity supply," says Thomson.
"That is causing problems as there hasn't been any major investment in the industry for 15 to 20 years.
"On the positive side, however, you can make money by investing in companies that are building power-producing capacity in the region."
The pace of development of African stock markets has not been as quick as many would have needed to take advantage of the capital available, which is why so many companies have opted to list abroad, such as on the London Stock Exchange.
There are other problems too. Bureaucracy can still be a hurdle for many businesses, and better-managed organisations of all kinds are desperately needed in public and private sectors.
But Professor John Mullins of the London Business School says progress is being made.
Economic aid from around the world is now being partly channelled into helping young, growing African companies, which is helping create jobs and bring prosperity to many countries, he says.
"There have been concerns about where aid money has gone in the past, but in this way agencies know it will go into real companies that can provide jobs."
So where do the sub-Saharan nations stand today? Tremendous progress has been made over the past few years, but some countries still have a long way to go, says Meek at CDC.
"The emerging markets are generally doing better than they have done in previous cycles but there's clearly still huge scope for development," he says.
"The trend is definitely positive as the likes of Ghana and Nigeria are far better run today.
"We're still not sure where on the economic curve Africa lies at the moment. People were still worried about investing in Asia five years ago and I would suspect that Africa is about five years behind that story, but it's heading in the right direction."
- Independent
