Burton Flynn and Ivan Nechunaev
EDITORIAL
There are many stereotypes about Africa.
Most people assume every country in Africa is poor,
dangerous and has a terrible economy.
Most investors think Africa is uninvestable.
We disagree.
Certainly, the 54 countries in Africa are not all the same,
and while some countries have more issues than others, similar to the United
States and Europe, others can make the average Western country jealous, not
only thanks to their beautiful nature, pleasant weather and kind people, but
also due to stable political systems, enviable demographic growth and promising
economic expansion prospects.
One such eye-opening example is Namibia, which we visited
with a research trip for the first time since 2015.
In theory, we – seasoned investment nomads who have made
nearly 200 research trips and met with more than 2 000 companies from over 30
emerging markets in the past decade – shouldn’t be surprised by any place
anymore, let alone by a sparsely populated country of close to three million
people living in south-western Africa, where the desert meets the sea.
And yet, we were amazed by Namibia.
Landing in Windhoek, Namibia’s capital city, was as tranquil
as it gets: it was a nice sunny morning with pristine blue skies painted with a
fine brush on top of green bushes and dry riverbeds.
It's a divine pleasure to start a research trip like this,
indeed.
We quickly made it through the friendly immigration at the
functional international airport and embarked on a half-hour ride to the city
on a perfectly smooth highway.
Navigating the safe, clean, groomed, modern streets of
Windhoek, we couldn’t help but ask, “are we in Germany after all?” – the street
signs were in German, a lot of the architecture was German, the tallest church
was Lutheran, many cars were German, and some of the residents looked like they
were roaming the streets of Munich instead of the savannah.
The prevalence of German culture in Namibia’s capital city
is explained by the fact that it was one of Germany’s only colonies in Africa,
with the first German settlers having arrived in the late 19th
century.
The colonial architecture, German language, Lutheran church
and German preference for Ordnung (order) seem to have stuck around on the
ground and remain prominent well into the 21st century.
Today, Namibia is one of the safest, most economically
advanced and politically stable countries in Africa.
It boasts well-functioning social institutions with a
top-three 'least corrupt' rank in continental Africa, improving highway
infrastructure, growing tourism industry and young demographics.
Seventy percent of Namibians are younger than 30 years of
age.
The country's population has more than doubled in the last
30 years - having expanded by over 40% in the last decade alone when Windhoek
experienced 50% population growth and the coastal towns Walvis Bay and
Swakopmund both grew by over 60% - and the split between urban and rural
population in Namibia is still at a nascent 50/50.
All of this creates tremendous opportunities for local
businesses addressing imminent urbanisation, middle class expansion and
resulting consumption growth.
Namibia is also becoming more and more popular as a
relocation and retirement destination for foreigners, particularly South
Africans escaping their decaying institutions, as well as Europeans - primarily
German speakers - escaping their depressing winters.
Riding the global work-from-anywhere trend, Namibia has also
recently introduced a digital nomad visa, seeking to attract talented creatives
willing to explore the country for up to six months and spend money locally -
thus benefiting the Namibian economy - while working online and not having to
worry about taxes. A win-win for everyone.
GAME CHANGER
Recent discoveries of very substantial oil reserves off
Namibia's coast appear to be a complete long-term game changer for the country.
This oil discovery can further solidify Namibia's economy,
improve its credit rating, help its businesses grow earnings and might lead to
a de-peg of the Namibia dollar from South Africa's currency.
From our analysis, stock markets of countries with newly
found large oil reserves did particularly well following the initial five to 10
years post-discovery.
It is likely that Namibia will follow suit, especially given
that its stocks are currently trading at very cheap valuations and an
unexpected hugely favourable catalyst, such as this oil discovery, can quickly
move the market.
The chief executive of the local stock exchange explained to
us that while there had been a slowdown in the economy since 2016, business
activities are now picking up - and the recent oil discoveries are only going
to make it hotter, as it will lead to an improvement in the country's
creditworthiness, which will drive an increase in investment, which will then
allow for growth in the entire economy.
In the stock exchange chief executive's view, given the
current mismatch between the economy with upcoming rapid growth, thanks to oil
discovery on the one hand and the solid profitable companies whose valuations
are 'through the floor' on the other, investors that come to the market today
might reap the biggest rewards of the future synchronisation between the
intensifying business growth and valuations that will have to catch up.
The sector that stands to benefit the most in the early
stages of closing this gap is the banking sector - which is already world-class
- because it will facilitate growth and investment throughout the entire
economy.
Banks that are already doing well will do even better,
concluded the head of the exchange.
HIDDEN GEMS
Navigating to our meeting with the management of a
multimillion-dollar IT and telecom group, we stopped at a warehouse building on
the outskirts of Windhoek.
What awaited us inside this unassuming warehouse was
shocking.
It was as if we entered a fantastic parallel universe dreamt
up by some genius mind.
The company's office resembled a spaceship moving swiftly
into the future, with a control room to the likes of which we only see in
movies about aliens or spies where they monitor the entire world via dozens of
high-tech screens.
Having completed more than 2 000 company meetings in the
last five years, we are confident this company's office ranks in our top-five
list of best corporate quarters.
The firm has been rapidly growing revenue and already
provides services in 35 African countries.
On its home turf in Namibia, it intends to compete with the
cellular network monopoly by launching a new mobile operator using 5G
capabilities - a welcome development for the quality of service in the local
telecom market.
This meeting only cemented our optimism about Namibia.
That a private high-tech telecom company managed to get off
the ground, attract top talent and expand to three dozen countries, and aspires
to compete with a monopoly, is a testament to the quality of the Namibian
people making it happen and to the strength of Namibian institutions providing
an environment for such high-value-add entrepreneurship to happen.
We went to Namibia to search for hidden gems.
What we did not expect, and what we realised during our
trip, is that Namibia itself is a hidden gem - one of a kind.
Namibia has all the potential to be known as a land of
growth and prosperity.
We believe it's only a matter of time before this market
gets re-discovered by investors.
It has growing businesses run by top teams, world-class
governance and it has a major catalyst that can drive long-term performance
across all sectors of the economy. Namibia