Excitement about investment opportunities in Africa is often considered to be a sign of a market that has reached its zenith. With no low-hanging fruit in developing Asia or the advanced economies, analysts desperately turn to markets which have always been described as full of unfulfilled potential.
In Deutsche Bank’s case, they have done the opposite with a recent note. The researchers explain why mining companies should be looking to Africa. For anyone whose business or investments are closely related to mining and commodities, the “top” was a long time ago. The authors phrase this diplomatically, noting that “growth is not a focus of the miners or investors today.”
But they make the case that the industry will inevitably return to look at growth sometime in the future. And one of the reasons they suggest to look at Africa seems extremely compelling.
In short, African conflicts are getting rarer — and that’s extremely positive for the stability needed for major investments.
One example of this trend can be seen in copper production in the Democratic Republic of Congo, one of the continent’s most resource-rich and populous nations.
During the 1990s and early 2000s, the DRC was a minor player in terms of African copper production, especially compared to Zambia and South Korea. The Second Congo War, Africa’s worst civil war ever, ran from 1998 and 2003. It was a vicious conflict that dragged in militaries and militias from the surrounding countries too.
Here’s how it looks now:
Zambian output as grown considerably, “other Africa” had its best year in 2014, and South African output has been more or less stable since the early 2000s.
But the Democratic Republic of Congo’s production is the one that stands out, climbing from less than 50 kilotonnes in 2003, when the war officially ended, to over 1,000 kilotonnes in 2014, an increase of more than 1,900% in just over a decade.
That’s one of the major arguments that Deutsche Bank made — that though Africa is often cast as a continent of intractable conflict, the number of wars has plunged in the last couple of decades:
It’s easy to see visually just how much more common civil wars, political instability and actual cross-border wars were in the 1990s. Here’s a snippet from the report:
Amidst the many dire statistics, we think Africa can offer a multitude of opportunities and on many fronts is moving in the right direction: perception is not always reality…
The clearest example of this is the perception of Africa as a conflict-ridden continent of civil wars, uprisings and coup d’états: not a place to do business. And yet the current reality is different: the occurrence of conflicts/civil wars, border contests and violent events has dropped by half over the last 20 years, from two-thirds of countries having violent conflicts in the 1990s, to one-third in the 2010s.
With commodity prices plunging around the world, the authors of Deutsche’s analysis note that growth isn’t the top concern for the sector right now — in fact, many countries are shuttering mines, not expanding their reach.
But growth will no doubt come back at some point — and in terms of its potential, Africa is the world’s last remaining economic frontier.