The recent slowdown in a number of the major economies in Sub-Saharan Africa has had an impact on investment sentiment within and towards the region and has led to a number of investors questioning the ’Africa Rising’ narrative. While there is substance to this narrative it has always been an oversimplification, in my view, as Africa is made up of many countries with different legal, monetary and political systems and at different stages of economic and infrastructural development. Furthermore, the drivers of the underlying economies in Sub-Saharan Africa are not homogenous – for example, certain economies such as Nigeria benefit when mineral commodity prices are high (mineral commodity exporters) while others such as Kenya benefit when mineral commodity prices are low (mineral commodity importers). Therefore, the short to medium term economic performance of the respective economies within Sub-Saharan Africa will vary depending on the stage of the commodity cycle.
Assess the long term fundamentals
While it is important for investors to assess and understand how commodity prices and the commodity cycle will impact the respective economies within Sub-Saharan Africa over the short to medium term, it is equally important for investors to pay attention to the underlying demographics, governance and rate of urbanization within a particular region as these two factors (amongst others) are necessary ingredients for a society to transform from a low income society to a middle income society over time. Lagos and Nairobi are experiencing rapid growth in the urban population (urbanization) and these two cities also enjoy favourable demographics.
Focus on cities as opposed to regions or countries
While country level indicators provide a useful context for assessing investment opportunities, I believe it is perhaps more informative for real estate investors to drill down further and assess opportunities at a city level as cities represent the centers of economic opportunity and are the engine rooms of an economy.