Companies Are Securing the Bag in Africa

  • Africa’s global banking market is the second most profitable in the world
  • 64% of companies’ Africa-based profit margins equal or exceed global margins

When you think about regions in the world where companies are seeing their best performance, Africa probably doesn’t come to mind. The Economist Corporate Network’s annual African Business Outlook Survey showed global companies’ Africa operations are performing well and have strong outlooks. Will global investors pay more attention to opportunities across Africa?

Why This Matters: Institutional investors are increasingly optimistic about the prospects of placing capital in African markets. According to eVestment, investors placed $2.5 billion in Q4 of 2017. African companies are rewarding investors for their increased confidence. The Economist’s survey showed 64% of companies’ Africa-based profit margins equal or exceed global average profit margins. For example, return on equity for African banks in 2016 was 14.9%. Compare that to the six percent return on equity for banks in developed markets. According to research from McKinsey & Company, Africa is the global banking industry’s second most profitable region.

Africa has long been an afterthought for global investors when it comes to investing in the private sector. This shifted during the Great Recession when African markets weren’t as exposed to the global economy. As African markets continue to deliver results for investors, expect continued capital allocation increases across the continent.

Situational Awareness: Now that African markets are more exposed to the global economy, their experience during another recession could be much different. IMF Managing Director Christine LaGarde spent much of 2017 warning about African countries taking on too much debt, leaving their markets more exposed. Watch out for how African countries take steps to diversify their economies and increase their resiliency in the face of a future global downturn.

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