China’s economy is more than five times larger than it was at the dawn of the millennium, meaning that early investors in the country could just sit back and earn massive returns. The country played a starring role in world growth over the last two decades. And despite a minor stock market crash, it’s been a gold mine for investors according to my stock market analysis.
But that ship has sailed. Although China is now an established global power, double-digit expansion is a thing of the past, with growth falling from 7.7% in 2013 to 7.4% in 2014. (Source: The World Bank – Global Economic Prospects, last accessed July 28th, 2015.)
As a result, many companies are already looking for a new bastion of growth to yield huge gains in the years to come—and they’ve found it. This continent holds nine of the 20 fastest-growing economies in the world, yet investors from Europe and the United States typically avoid sending their money there.
Dear readers, tapping into the enormous potential of this geographical sector is like investing in China as it emerged from the Cultural Revolution. This is the next frontier for global capital.
I’m talking about Sub-Saharan Africa.
Africa is China 20 Years Ago
In 2015, growth for the countries Mozambique and Ethiopia is estimated at 8.3% and 8.2%, respectively. The explosion of growth is driven, funnily enough, by investment from China. Many African nations are rich in natural resources, but lack the infrastructure, capital, and technical expertise to properly exploit them.
Enter, China. According to a World Bank report, “Between 2003 and 2009, foreign direct investment from China contributed almost two percentage points to gross domestic product (GDP) growth in Zambia, about one percentage point in the Democratic Republic of Congo and Nigeria, and 0.5% in Madagascar.” (Source: The World Bank – Global Economic Prospects, p. 167, last accessed July 28th, 2015.)
By trading infrastructure for access to mineral deposits, oil, natural gas, and farmland, Chinese firms have gained unprecedented access to Africa’s resource wealth. And they aren’t the only ones. Brazil, India, South Korea, Russia, and Turkey are all investing heavily in Africa. But we’re falling behind.
How to Get Rich from the Next China
Luckily our leading companies are catching on. Conglomerates like General Electric Company (NYSE/GE) are racking up huge orders from the Sub-Saharan region as the investment climate softens. The transition is difficult because rampant corruption and unstable governments make it harder to price risk. But hey, no one said it’s easy to get rich. It doesn’t happen overnight.
China was, and still is, a complicated environment for businesses to operate in. There is much less transparency than in other industrialized nations; the rule of law is relatively weak, but plenty of people made a lot of money. Since 1990, the Shanghai Composite Index has soared over 2,800%, handily beating the S&P 500 and other developed-market indices.
The same stands true for the Sub-Saharan region. The continent currently has a $93.0 billion gap for infrastructure development—a vacuum that investors and companies should consider a massive opportunity.
For instance, Angola ordered 100 locomotives from General Electric to help establish a national transportation system. Besides adding to GE’s revenue, the investment will help diversify Angola’s economy into mining and agriculture, providing additional opportunities for American companies. (Source: Bloomberg, July 25, 2015.)
Also, a Ghana-based company firm bought three gas turbines and four centrifugal compressors from GE for $850 million. These are the types of investments that catapult a nation’s output because they provide a foundation for growth. Once their economies pick up even further and individual incomes rise, think of the number of new consumers for American goods.
Dear readers, my advice is to watch for cutting-edge companies like GE that are making aggressive moves into Africa, because they will be poised for huge wins in the near future.