What regions will present more growth in the financial services sector during years to come?
We call emerging markets ‘global growth markets’ today and it’s only partially a polite way to call them. It truly refers to the fact that the most reliable, sustainable growth patterns are going to be coming from the global growth markets. By ‘global growth markets’, I’m referring to Africa, South Asia/Southeast Asia and Latin America.
What you will find is that the global growth markets really pose the best combination of rewards and risk – the best combination because on one side they have truly macro trends pushing them in terms of growth of the economies, growth of the consumption curve, the rise of the middle class that we’re seeing in all of these markets.
Personally, I believe that the two areas that present the highest growth opportunities and investment opportunities in growth markets are Africa and South Asia. It is no accident that we at Apis Partners have chosen to invest in Africa and South Asia financial services.
I’ll talk about financial services in a second, but just to expand on the region and why they’re growing so fast. In both Africa and South Asia, we’re really seeing one big point of commonality: over 50% of the population is below the age of 25. These are people that are young, getting older though, getting wealthier, in employment, and wanting to access the consumption goods and consumption patterns that they see their peers in the western world accessing today.
You see a fast rise of the middle class, a fast rise of the consumer desires – what we call the ‘growth’ along the consumer growth curve. As a result of this rise along the consumer growth curve, you see the increased demand for initially fast-moving consumer goods, then disposable financial services, such as life insurance and non-life insurance, which really are semi-luxuries but they are semi-luxuries that new consumers want to access.
You increasingly see more and more desire to access goods that simply cannot be paid for in cash. You can barely pay for an airline ticket in cash, you can barely pay for fast-moving consumer goods of a certain price point in cash; it’s really difficult to pay for insurance products in cash, so becoming fully fledged members of the formal financial sector becomes a necessity very soon, as soon as the consumers want to access those goods.
Today, over 80% of the population in Africa and in South Asia is part of the informal financial sector. They are un-banked or under-banked; 2.2 billion out of 2.5 billion of un-banked individuals globally come from those two regions. As a result, the growth in financial services in growth markets is enormous. We’re literally talking about double-digit growth – sustainable double-digit growth – for the next 10 years in terms of disposable income in these two areas of the world.
All of that disposable income is eventually going to pass through the financial services sector, the formal financial services sector. Of course, there is an undertone of financial inclusion that is extremely important, and likewise there is a big undertone of providing the access to these individuals. That’s what financial services in Africa and South Asia provides and that is why we have chosen to invest in those two areas. We believe it provides the best growth pattern.
As an investor, how can you capitalise on this growth?
It’s interesting to see how one can capitalise. You could potentially invest in specific sectors. You could invest in fast-moving consumer goods, which would give you good exposure to one part of the consumer growth. You could invest in oil and gas or mining, although those are largely decoupled from the rise of the consumer in those areas.
I really think the best combination is financial services. The best way to invest into this growth, to capitalise on this growth, is to invest in financial services in those markets, as they truly are not a sector. They are, in our opinion, a meta-sector. They are the bottleneck, if you will, in a positive way, that gives you access to all of the other sectors in a formalised way.
We believe that the best way to capitalise on this growth, in a diversified manner across all sectors in these regions, is to invest in a financial services product. We believe that, given that the majority of the potential opportunities are unlisted – they’re private – we believe that a private equity product focusing on financial services as a meta-sector, not as a sector, in global growth markets is the best way to capitalise on this growth.