This could be the year of the big shift. From 2025 to 2030, the UN expects 35 million south Asians to enter its labour market each year, and 36 million Africans. So when it comes to looking for cheap labour, should the ‘China+1’ crowd be looking beyond India into Africa? 

On the most important metric of all, the answer is yes. Only literate countries can sustain a strong industrial base. So when it comes to moving a textile factory, let alone a high-tech Apple facility, the adult literacy rates from northern African countries (70–100%) to the likes of Nigeria (80%) or Kenya (80%) are easily competitive with India, and considerably more attractive than Pakistan (60%). 

But investors don’t just need literate people. They also require cheap, plentiful and reliable energy supplies, and a transport infrastructure that can move goods from the cheap factory to the wealthy consumers in richer countries. 

Unfortunately, energy and transport infrastructure is painfully expensive to build in too many African countries today (and Pakistan too). Interest rates are often at double-digit rates because savings are in short supply. When interest rates are high, infrastructure becomes expensive. Electricity costs in much of Africa are far higher than in Europe. Ports, roads and airports suffer from the shortage of savings. 

How did Asia find the local savings to develop infrastructure and support industrialisation? They benefited from the double demographic dividend. This is when the share of workers in the population rises from roughly 50% to 65–70%, and when savings boom. As countries get older — and south Asia has a median age in the mid-20s now versus the mid-teens for some African countries — households are able to save money. Bank deposits grow and interest rates fall. Much of Africa remains too young to save. 

We do see FDI into Africa, from car manufacturing in Morocco to financial services in Mauritius. Both have literate populations, and good infrastructure funded by ageing local populations at low (Asian-level) interest rates. 

So who in Africa is the next ageing country? Egypt, with its population of 100 million and a fertility rate expected to fall below three children per woman in 2025–2030, and Kenya in 2030–2035. But for now, India, Bangladesh, the Philippines, Vietnam and Indonesia offer the perfect combination of literacy, low fertility and high enough local savings to be the favoured China+1 option for FDI. 

Charlie Robertson is head of macro strategy at FIM Partners

This article first appeared in the August/September issue of fDi Intelligence