While “western” economies are seriously challenged, we do believe that there lies a great future ahead for some countries in Africa and the Middle East. Our belief is based on our belief in the fundamental reasons that don’t need an economist to figure out: The Western world is faced with the reality of a rising debt burden (I decided to express this mildly) and an ageing population. This is probably a good moment to again feature our debt vs. reserves charts and get out the population growth statistics.
I am about to say things that most of us already know, simple things that are not put into perspective enough, possibly because they seem too simple. Debt in the developed world does not only refer to the bills that have to be paid by governments but has trickled down to all layers of society. Governments print cash to alleviate the problems and spur future economic growth. The larger cost of debt is being shouldered by a population that is not growing enough. In other words, the fiscal burden will become heavier on a society that will be asked to give up an even larger portion of their income in order to service the debt. In other words, this is not a very good recipe for sustained economic growth.
The reason why we set up Silk Invest is because we saw an opportunity to invest in a series of countries that have a great future and find themselves are in a privileged situation when compared to the above. In our region of focus, Africa and the Middle East, and while things are not always perfect there, we have the choice out of a handful of countries which find themselves in a great fiscal position, some of which even enjoy high levels of reserves that exceed outstanding debt. Also, in contrast with the “developed world”, the populations of these economies are growing at high rates with millions that aspire to lower middle class status and hence, the possibility to become consumers.
Investors from the developed world are running out of excuses not to invest in this region. It will be increasingly difficult to extract value out their home markets and they need to make those needed returns somewhere in order to support their future. Unfortunately, western investors still classify these markets as ‘risky’ so allocations to these markets are subject to risk appetite. We strongly believe this popular perspective of risk needs to be entirely re-assessed as, based on simple arguments, it can be argued that from a fiscal standpoint, the economies of the first world are intrinsically more risky than those of developing nations. However, investors from developed nations have proven to be keen to invest in BRIC economies, again subject to risk appetite but often with a rather generous allocation within their risk budget. These investors often fail to realize that the beneficiaries of their money flows, the companies in the BRIC economies, in turn use a good part of this money they receive to invest in Africa and the Middle East! How can you invest in China and at the same time ignore putting money to work in Africa? We should not forget that expansion into Africa is one of China’s top strategic priorities…
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