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Sub-Saharan Africa 2015: Keys to the cities

Savvy investors are zeroing in on the opportunities in fast-growing African cities.


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AS SUB-SAHARAN Africa’s economy grows, it develops and splinters. Once there were a few, genuinely powerful and mostly South African lenders, including FirstRand Bank, Nedbank and Investec Bank. Others were bought into or taken over, with Absa becoming Barclays Africa and China’s ICBC securing a stake in Standard Bank. Then came the rise of listed Nigerian lenders, from GTBank to Zenith Bank to Access Bank, and the occasional pan-African bank, notably Togo-based Ecobank. This created more investable financial services options for emerging market-focused regional and global funds. 

Other sectors have, over the past decade, become more powerful and mature. Food stores used to be local affairs, at best. How fast things change. Kenyan-headquartered supermarket chains Nakumatt and Tuskys now own stores in neighbouring Uganda, Tanzania and Rwanda. South Africa’s ShopRite operates in 17 Sub-Saharan African countries. Global peers Wal-Mart and Carrefour are pushing hard into the region. Global consultancy McKinsey tips regional sales of consumer goods and food to hit $185 million annually by 2020.


 Food stores used to be local affairs, at best. How fast things change.

Some corporates, investors and financial services specialists are looking to gain regional breadth and depth. Others prefer to focus on a few key markets. Some are searching for a highly specific form of return. This is yet another sign of how quickly the region is maturing.

Expanding cities

Jacob Kholi, partner and chief investment officer, Sub Saharan Africa, at The Abraaj Group, a leading global buyout firm, focuses on four key markets (Kenya, Ghana, Nigeria and South Africa) while delving into fast-growing corporates and assets in rising frontier states. He further sharpens Abraaj’s focus by exploring investable assets geared toward specific cities, or a country’s urban citizens. “Many African cities are growing at double the rates of the sovereign itself,” he says. “By 2025, more than 80 cities in the region will have more than a million people apiece, comprising around 60% of regional GDP. You cannot afford to overlook that development.”

Abraaj looks for investable assets around, say, the Ghanaian capital of Accra, or in the wealthier first- and second-tier Nigerian cities south of Abuja, in the Niger delta. The benefits, in addition to access to a larger, wealthier clientele, include better infrastructure. One early investment in Ghana was in a pioneering bottled water firm, Voltic. Abraaj built on its name strength in Accra, before taking it deep into smaller cities and towns, then testing the brand in rural areas. 

Core assets

This malleable approach to strategy is playing out around the region. Banks and corporates focus on core products and markets, rather than the entire region. Over time, their operations began to coalesce, as poorer municipalities became wealthier. That is clearly happening in Sub Saharan Africa, home to a small core of powerhouse economies, along with a far larger number of frontier states offering more risk as well as potentially far higher reward. Gaining access to those markets, and unlisted but valuable assets and corporates within them, may be tough. But then, nothing worth doing ever comes easy. 

For Robert Hersov, founder and chairman of London-based investment and advisory outfit Invest Africa, Nigeria’s true untapped potential lies less in the cities already lodged in the minds of casually informed investors (Abuja, Lagos, Ibadan) than in the northern regions under intermittent threat from militant group Boko Haram. He points to Kano (population 3.6 million) and Kaduna (1.7 million), the latter a medium-sized province whose governor, Nasir Ahmad el-Rufai, is a Harvard economics graduate with a reputation as a reformist and graft-buster. “If Boko Haram is pushed back, the whole north could take off,” Hersov says. “Kano state alone has a population of 10 million and rising. Its economy, at $17 billion, is bigger than Botswana’s. The potential for manufacturing, agriculture and retail investment [in these areas] is huge.” 

Foreign investors, Hersov adds, “have to start thinking in terms of specific African countries, cities and opportunities. What are the prospects of Mkushi District in Zambia? More sophisticated, nuanced, explanations of Sub-Saharan Africa’s potential are seriously lacking. We are talking about 54 countries here. Each with its own unique economy. Each with different cultural norms, languages and business practices. Investor naivety and generalization is a major fall point.” 

Sub-Saharan Africa is changing, offering specific, high-growth business opportunities, from telecommunications in Tanzania and IT services in Rwanda to sustainable quarrying in Gabon and lingerie production in Kenya. The investment possibilities are endless, as well as endlessly fascinating.

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