Africa Rising

Charles Robertson, the Chief Economist from Renaissance Capital, has written a new book on Africa, called the Fastest Billion. He also got to do a TED Talk about Africa, which has just been released on the Internet.

Firstly, I love TED talks. They manage to get complex and nuanced subjects over with a degree of clarity I love and envy. I often find them a great cure to an addled mind.

This talk was no exception. It was simple and concise, but at the same time highly informative. For me there were three important messages he brought out extremely well.

Inevitability. He put up some excellent charts of GDP per capita showing the way countries have developed, especially since the birth of the Industrial Revolution. They looked remarkably like the charts Hans Rosling produces in GAPMINDER that I referred to in my introductory blog.

Obviously not all countries have historically started to develop at the same time. Local factors may hold them back or push them forwards, such an oppressive political regime or easily usable resources, but once the brakes are taken off and the engine is running, they become near impossible to stop.

It is this inevitability that too many investors miss. I am still shocked how many people I talk to still think about Emerging Markets as if they were some kind of flash-in-the-pan.

Education. I had never seen anything like his chart on education previously. I did not realize that levels in many African nations have reached the same as those we saw in Mexico and Turkey before those countries started to grow. To me this is crucial, because an educated population demands more from its politicians and no longer accepts “business as usual”. They are more able to move beyond mere subsistence living into something more structured.

When I was at university, nearly half my year was from sub-Saharan Africa, which partly explains my interest in Emerging Markets. Many had gone to British Public Schools prior to university, and the majority of them were returning home afterwards, so I should have been more tuned in to the rising educational standards.

When I first started investing in Latin America in the early 90’s, part of the argument was that there was a whole army of bright young graduates from the region who had been educated in the Developed Economies and were now returning home to use that education and to participate in the opening up of the economies. If it worked in Brazil and Mexico, why not Nigeria and Ghana?

Speed. Possibly the most contentious point he made was that Africa would now grow faster than other regions had previously. I cannot point to any empirical evidence to support that conjecture, but….

I think it was Jared Diamond in his book Guns, Germs, and Steel who explains how physical geography can affect the development and transmission of ideas; People who live in mountainous jungles are less likely to invent the wheel than people who live in more open areas. The cultivation of domesticated crops can spread more easily along lines of latitude than longitude because climate tends to be more constant.

That has probably been true over thousands of years of human history, but not so today. Today ideas can flash around the world at quantum speed. Changes to productivity that used to take decades, if not centuries can now happen in a few short years. We assume that countries will go through the whole development process the way we did, but forget that they can just buy the same technology that we have off the shelf.

I am almost the transition generation between what we might call low technology and high technology. As Douglas Adams put it in a Hitchhikers Guide to the galaxy, when I left school people used to think that digital watches were a pretty neat idea, my school was the only one in the country with a computer, and my A Level class was the first to be allowed hand calculators in the final exam.

When I was a graduate trainee, company meetings were dominated by discussions of the strategic importance of Information Technology. It soon dawned on me that it was actually a zero-sum game. Most people were following near identical strategies, whilst those that delayed would just buy the next upgrade in 6-12 months time.

A few years later, when I started travelling to Latin America regularly, it was almost like watching a Conquistador plague laying waste to Middle Management. Empty offices large enough to hold dozens, if not hundreds, of people now held 10, everyone else replaced by computers. Not clunky Brazilian import substitution computers, but the same as, or better than, I had under my desk in London. Running the same Excel or Word.

In the late 90’s, I travelled to Brazil with my then boss, and he asked the banks about their operation, and it soon became apparent to him that in many ways they were more advanced technologically than Canadian banks, with same day cheque clearing anywhere in the country, and seamlessly integrated internet and regular banking.

When I was in Bougainville last year, we passed a Cell tower that obviously had been pulled down. I my ignorance I assumed it was a tribal dispute, but no. We were informed that a local Chief had ordered its destruction after he discovered his daughter had “sexted” pictures of herself to her boyfriend!

When MTN started building its cellular operations in Nigeria, they did not start with the old analogue technology of my first cell phone, but with the latest GSM that they were installing in South Africa. M pesa in Kenya is regarded as the global standard for mobile money transfer.

So yes, I believe Africa will benefit from this acceleration of ideas. It seems that each wave of development has been faster than the one before, as each learns from the previous wave.

And worse case, that Africa’s growth will only be in line with other development waves, still points to a number of very exciting decades ahead.