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Just as investments are often split into asset classes to aide with investment decision-making, the business world is often split into the business regions. For multinationals, the core regions of the world are the Americas (AMER), Europe, Middle East and Africa (EMEA) and Asia-Pacific (APAC). These regions make sense as they might have historically had roughly similar levels of business activity for multinationals, as well as the fact the regions are longitudinally split, east to west, meaning that intra-region timezones are similar.
From a business activity point of view, the acceleration of APAC, driven by China's urbanisation and the ongoing growth of South-East Asia, has seen it become a critical region for most multinationals and international investors. Furthermore, population-wise, APAC has about twice as many people as EMEA, and 4-times as many people as AMER. By the end of this century, however, APAC's population is expected to be in steady decline, losing about 20 million people per year (or about 0.4%), where as one region will set to take the mantle as the biggest in the world: EMEA.
So how will EMEA, which is currently half as big as APAC, catch-up and overtake over the next 80 years. It definitely won't be driven by Europe, whose population has already likely peaked. And whilst the population of the Middle East is likely to grow, that growth is going to be big enough to even offset the decline in Europe's population. No - the main growth engine for EMEA and global population growth will be Africa.
One other way in which investors tend to split the world, rather than longitudinally, is by economic development. Most investors hold the bulk of their assets in the developed market, which primarily includes the USA and Canada (from AMER), North and Western Europe (from EMEA) and Japan, Australia, New Zealand, Hong Kong and Singapore (from APAC). Quasi-developed market countries might also include Korea and Israel. These countries are likely to have robust economies, good rule of law (especially investor protections) and modern financial market places. Emerging markets include countries that have some of these characteristics and include most of the bigger countries remaining in the other regions including the famed BRICs (Brazil, Russia [temporarily removed?], India and China) as well as most of Eastern Europe, Mexico, South Africa, Egypt, the oil-rich Middle eastern countries and South-East Asia.
Many investors will have some exposure into the emerging market range of the spectrum. The far end of the spectrum, otherwise known as frontier markets, do not garner much attention from regular investors. And the region that sits almost entirely within this space is Africa (other than South Africa and Egypt).
This dynamic, however, is likely to change over the coming decades as population growth and urbanisation accelerates economic activity and opportunity. By the end of the century, Africa will likely become the economic engine room of the world, housing about 40% the globe's population (current proportion is roughly 17%). In relative terms, and considering that Africa's GDP per capita is also likely to at least double over the century, GDP growth in Africa is likely to be at 2-4 times higher than much of the rest of the world. If investors can participate safely in this growth story, investing into Africa could be a primary source of returns over the coming generations.
The lesson of the BRICs, however, should provide some pause for thought. Whilst a similarly hype of extra returns has been offered over the past decade or so, the reality has not lived up to the promise. Interestingly, though, multinational companies that have exposure to these growth engines, have shown perhaps less risky way in which to take advantage of such growth prospects. And as the case of Russia would attest, the investment journey into the frontiers of Africa is likely to throw up some significant dangers.
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