Bradley Seth McNew argues why Africa looks poised to be the growth story of the next few decades, along with a few industries and companies to play this long-term growth.
Africa is growing faster than Southeast Asia.
According to research by the African Development Bank Group, Africa’s economy (excluding South Africa) grew by 6.8 percent in 2014 compared to 6 percent in 2013. The continent’s total output is growing at an increasingly rapid pace, already surpassing that of most of Southeast Asia.
There are many ways to get in on Africa’s economic expansion. Here are three companies in industries playing a big part in the continent’s growth to get you started in your search.
1. Energy, particularly deepwater drilling
Six of the 10 largest oil and gas discoveries (by number of barrels expected) in 2013 were made in Africa. Many Chinese oil companies have sought to become the largest explorers in the region. However, much of the oil and gas in Africa is offshore, and American companies are still looked at as industry leaders with the expertise to be the winners in this area. One of the best plays on offshore oil exploration in Africa is Anadarko Petroleum (NYSE: APC ). This company has This company has the right technology in place in key exploration markets, such as Mozambique, to take advantage of the wealth of reserves there. While there are other great energy options in this region, Anadarko has proven its ability to be a stable play in the region working with local governments and continuing to find new markets to explore.
As nearly the entire energy sector is hammered by OPEC’s volatility, Anadarko looks to be selling at a deep value now.The stock is down over 25 percent from its high of $110 in August of this year. By becoming a leading oil and gas discoverer in Africa, Anadarko could have incredible long-term potential.
2. Leisure and travel
Energy and natural resources is the kind of industry that investors would typically look at in a developing region like Africa. But leisure travel? As Africa’s middle and business class expands, and as more and more business travellers and vacationers visit the continent, hotel companies could be some of the biggest beneficiaries of African growth.
The best play for this right now looks to be Marriott International (NASDAQ: MAR ). In April 2014, Marriott acquired the largest African hotel chain at that time, Protea Group. Protea encompassed 117 properties in seven African countries, making Marriott by far the market leader there.
But Marriott is not done. The company sees Africa as a major growth-driver over the next decade. Its aggressive expansion plans there include an additional 40 properties, including the company’s high-end Ritz-Carlton brand, by 2020. This will give Marriott a presence in 13 African nations’ total.
‘Marriott International’s fast growing footprint across the Middle East and Africa is a response to the potential we continue to observe in the region,’ said Alex Kyriakidis, Marriott president for Middle East and Africa. ‘At present we are seeing strong GDP growth across sub-Saharan Africa, which translates into opportunity for our industry.’
3) Fast food
Yum! Brands (NYSE: YUM ) made headlines in September by announcing its first-ever Pizza Hut location in South
Africa. This follows the company’s initial 2010 push to build KFC restaurants in Africa; so far there are nearly 1,000 KFC locations in 17 African countries. Africa is home to more than 1 billion people in 53 countries, and Yum! Brands estimates that African consumers will spend $2.5 trillion in 2020. That’s clear cause for Yum! to continue its expansion of KFC and Pizza Hut locations on the continent, much as it previously did in China.
A call to action
Investors who made an early bet on China’s economic growth were rewarded greatly with long-term profits. Now investors who are paying attention to Africa might get that chance again. But to do so, make sure you’re picking a solid company that can weather volatility as the African economy surges. The three ideas above are a good start, but continue to watch this continent for the massive growth it will experience in the next decade and for more ways to benefit from it.
Bradley Seth MacNew is a China-based American writer and former Anti-Money Laundering Intelligence Analyst with Western Union