Global Value Hunter

Close this search box.

The number one reason I’m bullish on Africa

African young students and African graduate students taking selfie

In a word: Demographics. They are going to go from being a drag on growth, to a major contributor to growth.

It’s going to happen quite fast, inside one generation, as it did in Asia. 

By 2040, there will be more working-age people in Africa than in China and India combined. And it’s these people that drive economic growth with their output, and their expenditure.

Each year, tens of millions of African children and young adults will graduate from school or university. They will enter the workforce and get their first job. They’ll get their first mobile phone, open their first bank account, drink their first beer, and begin thinking about getting a place of their own. It’s going to be a major step-change for most African economies.

In contrast, Africa today has a very high “dependency ratio.” There are many more babies, infants and school-age children than there are workers to support them. More than half the population is under 20. Some 15% of the entire population is under the age of 4.

Fertility rates are high. The average woman in most African countries still has 4, 5 or more children.

In traditional, agrarian economies this is quite normal. The same was the case in Europe and in Asia, when their economies were dominated by agriculture, rather than manufacturing, and then services.

Where lots of young able-bodied people are needed for back-breaking work in the fields, and mechanization is limited, people have lots of children to ensure they have the labour necessary to feed their families.

Poverty, and sub-optimal health outcomes also mean many more children die young.

However, in recent decades there have been important changes. The impacts of many childhood diseases have been successfully curtailed in Africa, just as they were before that in the West and Asia, by widespread immunization, better nutrition, and sanitation.

You will note from the chart, child mortality in Africa has dramatically declined. As a result, many more children are going to school, growing up healthy, and will be entering the workforce in decades to come as productive members of society.

Africa has been catching up rapidly on this indicator, but infant mortality in Africa still stands at the equivalent of the 1990 level in Asia. There is room for even further improvement. (For more on this topic, and many others which demonstrate how much better the world is today than it was in the not too distant past, I thoroughly recommend you read Factfulness by Hans Rosling.)

As economies in Africa evolve towards more manufacturing, services, and knowledge jobs, people will grow more prosperous, and also decide to have fewer children. It’s a well-worn path in human development.

factfulness by Hans Rosling

Globally, on average, fertility has been falling since the late 1950s. Africa is a latecomer to this trend, but it’s now happening. You can read more about the topic from the BBC, here:

It is not having fewer children that makes you wealthier; instead, becoming wealthier means you have fewer children

Once a country starts to develop and incomes increase beyond a certain level, fertility rates start to drop off. Women become better educated. They learn about contraception. Many enter the workforce alongside the men.

Asia’s population pyramid from 1970

They elect to have fewer children. Parents spend more time and money educating each child, rather than simply having more. Over time, the ratio of young children in the overall population declines.

This “demographic dividend,” as the ratio of productive, working people – relative to those relying on them for support – increases, was one of the big reasons for the booming economies in Asia over the past 40 or 50 years. 

Here is Asia’s population pyramid from 1970. It shows the percentage of each age group in the overall population, separated into males and females.

In short, there were lots of very young people. Total it up and you will note that 51% of Asia’s population back then was under the age of 20, with a heavy skew toward even younger age groups. Children under 10 comprised 29.1% and children under four made up 15.8% of the total population.

The working age population between 20 and 64 was 45.4% of the total.

Here’s the same picture for Africa today…

It’s remarkably similar to Asia 50 years ago. However, Africa has about 40% less people in total than Asia did 50 years ago (1.3bn vs 2.1 bn). Some 50.9% of the population in Africa now is under 20. Breaking that down further, 28.7% is under 10, and 15.1% is under the age of 4.

Asia’s population pyramid 2019

In the age group 20 to 64, typically associated with people’s working lives, sits 45.4% of the population. That’s exactly the same percentage as Asia in 1970. It means there are approximately 594 million people of typical working age in Africa today, but there are 665 million people under 20, and 49 million people over 65 that they must support.

Now what about Asia today? The overall population has more than doubled since 1970. From 2.14 billion to 4.64 billion. But now, only 31.2% of the population is under 20. Meanwhile, a hefty 59.9% of Asia’s people are now in the most productive years of their lives, aged between 20 and 64. That leaves 8.9% in the rapidly growing over-65s age group.

demographic dividend in Asia 2020

Put another way, Asia’s working-age population grew from approximately 973 million in 1970 to 2,780 million today. It nearly tripled. And it unleashed an economic boom the likes of which the world had never seen. The number of people under 20 meanwhile only grew from 1,092 million to 1,448 million, or up 33%.

However, the effect of this “demographic dividend” in Asia has now peaked.

One by one, Japan, South Korea, Taiwan, Thailand, China, and so on have all seen their labour forces and economies boom, then plateau, and begin to slow down. The “Asian Tigers” of 20 or 30 years ago are entering old age.

There is still good growth in many Asian countries, such as Indonesia, The Philippines, Vietnam, Myanmar, Bangladesh, India and Pakistan, as well as in Central Asia. But for my money…

Today the fastest growth in working age populations, and the promising investment opportunities that come with that, are in Africa

According to the IMF, by 2040 the African labour force will be over 1 billion people. That will be more than China and India combined at that time.

Africa also has plenty of natural resources. What it lacks is adequate capital. There are three main sources of new capital in Africa currently:

  1. Remittances from the African diaspora working around the world.
  2. Foreign direct investment.
  3. Development aid and finance from donor governments, charities, and multi-national institutions, such as the African Development Bank and World Bank.

Over the medium and long term, as the rich countries of the world age, their workforces, and even their overall populations shrink. We’re already seeing this in Japan, Italy and Spain. As this trend progresses, I believe that capital will start flowing to Africa, where the labour, natural resources, and best market expansion opportunities are, rather than African migrants flowing out to where the jobs are.

Remittances will thus taper off. But foreign investment will increase dramatically, both directly by foreign companies, and via so-called “portfolio” investments by savers in rich countries looking to earn better rates of return than they can at home. This will fund growth for African companies and result in more job creation. 

Interest rates, and returns on capital in most African markets are well into the teens, and sometimes much higher. Yes, there are higher risks. But the extra quantum of return you can potentially earn more than adequately justifies the risks, in my view. 

Comparing potential returns in Africa to the paltry returns now in the most of the world, where interest rates are next to nothing, it’s not hard to envision a scenario where some of the more adventurous investors in the West, and Asia begin to deploy part of their capital in the high-growth “frontier” markets of Africa. Like me!

I would love for you to join me in the vanguard. It’s why I provide the information here at Global Value Hunter that I do. And, it’s why I am launching the African Lions Fund.

If you missed, or were too young to take advantage of, the growth of the Asian Tigers, I believe now is your chance to ride a similar growth wave in Africa.

It’s easy to think that Africa is poor, underdeveloped and full of misery and despair. Fed on a constant diet of negative news by the Western media, it’s perhaps not surprising that many of us are conditioned to think that way. The same was true of Asia a generation or two ago. It too, was seen as a miserable backwater of human existence.

I’m here to tell you such perceptions are just not accurate. If you don’t believe me, I’d encourage you to jump on a plane. Go and see for yourself the bustling African commercial capitals, witness the infrastructure construction that’s going on, and imagine what’s going to happen when the number of people who are in the productive, earning and consuming years of their lives DOUBLES over the coming 40 years.

I’m convinced it’s going to be a very profitable ride for investors. That’s why I have jumped on board. Why not join me?

Until next time,

Good Investing!

Tim Staermose

Founder and, African Lions Fund.

Privacy Policy
Copyright © 2023 ST Funds Management Limited | ABN 65 154 454 092 | AFSL No 416778