My friend Shan Saeed, a renowned financial market economist shared about the prospect of investing in Africa. Africa is going to become the biggest manufacturing hub. Here’s his insights:

I came across this article in the Economist magazine last March 2010 where Standard Chartered Chief Economist, Gerard Lyons, said that Africa will become the next manufacturing hub. It caught my attention, and so I started doing research on Africa.

Economist magazine labeled Africa ten years ago as “The Hopeless Continent”. Now, the same magazine is talking about the impressive growth in the country, which is said to likely to continue in the next twenty to thirty years, and is the reason why everybody will be moving to Africa in the next ten to twenty years.

The first topic I will be sharing with you is: Why Africa will become the next manufacturing hub. Why? It is because if you look at the last eight to ten years, you’ll see impressive economic growth in the African countries, especially North Africa. It’s remarkable.

From Ghana in the west to Mozambique in the south, African economies are consistently growing faster than almost any other region of the world. At least a dozen of them have expanded by more than 6% GDP growth a year in the last seven to eight years. If you look at Ethiopia, which was once labeled as a famine country, it has grown by 7.5% last year without a drop of oil to export and is now the world’s tenth largest producer of livestock.

Over the past decade, six of the world’s fastest going countries are in Africa. In the year 2010/2011, East Africa has shown remarkable growth because of oil. Also, according to IMF and the World Bank, Africa will grow by 6% in 2012 and by 7% in 2013. If you see the Economist’s report on how the world will become in 2030, they discuss how Mozambique, which is in the South, will grow by 8.2% GDP, Rwanda in Central Africa will grow by 7.8%, and Ghana in West Africa, will grow by 7.6%. That clearly demonstrates huge growth in the African region.

How will Africa become the next manufacturing hub? Low labor cost, abundant resources, quota-free access to U.S. and European markets. To give you a small example, we’ll quote from the Economist magazine: Let’s look at the leather industry in Ethiopia. This sector employs around 8,000 workers and has exported around $8 million worth of leather in 2010. It also appears that aside from having lower labor cost than Asia, Ethiopia also has a large cattle population, second only to Sudan.

Ethiopia’s strategic competitive advantage in wages, productivity, and natural resources has led to a Chinese shoemaker giant, Huajian, to build a factory in Ethiopia a year or so ago. The two production lines starting in January 2012 exports around 20,000 pairs of shoes a month and creates an additional five hundred plus jobs.

The opportunities and preconditions are certainly there. Africa would be ahead of China, and ahead of many Asian countries like Vietnam and Indonesia.

The biggest advantage of Africa is that they have very low labor cost, and investors would actually go to those countries where labor costs are very low which will help Africa in becoming the next manufacturing hub.

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KCLau
KCLau

Personal finance author and trainer

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