This year, we’ll be running a series of episodes on what we think are underappreciated narratives, ideas which should be mainstream in modern economic and investment thinking but which are rarely talked about. Underappreciated ideas can offer interesting long-term investment opportunities and so are important to think about.
For this episode, we want to take you 30 years into the future. The year is 2053, and we are in a metropolis of 40 million people, a cultural and economic centre for the world’s third biggest economy, an economic giant with a population of 800 million and the centre of a regional economy with a population closer to 1.3 billion. We are in Lagos, the largest city in Nigeria, and we’re witnessing the outcome of the next great miracle in the modern global economy’s story.
Capitalism and industrialisation can change things so quickly, it’s hard to remember what the world looked like in the recent past. It is easy to forget that the great economies of East Asia (Japan, China, South Korea) were, not that long ago, low income countries with small economies and widespread poverty. China was an economic minnow in the 1990s. In 1993 China’s GDP per capita was lower than that of Uganda. Twenty years later it’s an economic superpower and a viable challenger to the United States as the world’s largest economy.
Most people’s careers last 45-50 years, followed by retirements of 15-20 years in many cases. This is an investment period for the average investor of 60-70 years. If China can rise from economic obscurity to economic superpower in just 20 years, it’s not fanciful but actually quite practical to be thinking now… who’s next, and can we invest in that story!
Nigeria’s GDP (economic output) has increased 6.3x since 2001, its GDP per capita 4x. And we are seeing a similar economic miracle play out across much of West and East Africa too.
Nigeria is emblematic of the wider opportunity from economic development in Africa. West Africa, and much of East and Southern Africa, is (on average) culturally diverse, with relatively open societies, developing democracies, and legal systems much more closely aligned with European or American systems. In the long-term these are powerful ingredients for economic success.
America’s early democracy, political, and economic development were not a smooth ride! It was a bloody and volatile road to becoming the modern economic and cultural giant the United States of America is today. Many would have laughed at the idea if, in mid-19th century London or Paris, you had suggested that America would dominate the planet within a century. Similarly you may have even been mocked (as your author and narrator once was, literally), for suggesting in the late 1990s that China would become a superpower on par with America within 20 years.
To suggest that this story is over, that China was the last new economic superpower rising from obscurity, doesn’t hold water.
We are already seeing India fast become the new kid on the superpower block, and we think it’s wise to think 15-20 years ahead to who will be next. West Africa is a strong candidate.
What does a story like this mean for investors today? It means thinking about investment allocations for the long-term that take into account what the world could look like. Assuming the poor stay poor has been a terrible bet over the past 200 years. Emerging markets across the world, currently thought of as destinations for aid spending or maybe an ‘adventurous holiday’ by many in the West today, are the economic giants of tomorrow and will be sooner than you think.
What’s more, we as investors can get in at the ground floor on many of these opportunities, via investments in Funds with exposures to these markets or mandates with the flexibility to allocate to emerging long-term trends like these.
Extrapolating the present into the future rarely works. We’re extremely excited about the future and, what’s more, we’re especially excited about future structural trends which are not well appreciated… because that usually means they are under-priced!