Brics, young middle class to thank for Africa’s economic boom

The emergence of the BRICS (Brazil, India, China and South Africa) in 2008, kickstarted an economic boom in Africa that has seen the continent produce seven of the world’s fastest growing economies.

The boom has pulled millions out of poverty and pushed a few others into the middle class, a factor that helped make the continent a popular investment destination. Last year, deals worth $2 billion were closed with the major ones being the $100 million Al Futtaim acquisition of CMC Motors in Kenya.

READ: 2013: Year of vibrant business acquisitions and mergers

And it is not just the economic boom fuelling the new wave of mergers and acquisitions(MA). Africa has the world’s youngest population.

More than 60 per cent of the over 1 billion Africans today are below the age of 25 and while the population in the West is ageing, more of the continent’s people are joining the labour market and by extension becoming potential buyers of goods and services.

READ: Africa’s youthful populace key resource for economic growth

Second, after years of economic closure, Africa is opening up to the world and also improving its own regulatory environment.

Although Africa contributes only 3 per cent of global MA deals, the region has seen extended activity, with East Africa emerging as one of the key destinations.

Last year, for example, MA deals worth over $2 billion were closed in the region. The allure of a growing middle class, the increased opening up of the markets and improved regulatory environment have raised the appetite for MA deals in the East African region.

Private equity firms have been the key drivers of the new focus buying a sizeable number of companies in the region. Everyone wants exposure to the middle class.

Compared with a decade ago, today there is a thriving private equity industry in Africa, valued at approximately $30 billion. There are more than 50 private equity funds entirely dedicated to the continent, which are invested in infrastructure in Africa including road tolls, dams and airports.

There are now more than one billion middle class consumers in Africa, and the promise of the ever-deepening consumer pocket is luring more foreign interest.

“When you add to the mix the efforts made by the region’s governments to improve regulatory regimes, it is no surprise that African MA is surging,” says a Deloitte report on the MA market in the region.

“Although political risks are present in some countries in the region, taking a longer-term view, Africa is considerably more stable than it has ever been.”

The energy, mining and utilities sectors took the lion’s share of MA deals during the period under review, dominating both the number of deals made and the value of the transactions.

SOURCE: The East African