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Can Walmart and Coca-Cola make profits in Africa?

Analysis: Private investment is significant vote of confidence in continent's future.

Coca-Cola in Africa
Coca-Cola is sold in every one of Africa's 54 countries. A young Maasai carries a crate of Coca-Cola to celebrate his initiation to manhood ceremony in Kisaju.(Radhu Sigheti/Reuters)

BOSTON — Is there money to be made in Africa? You bet.

Just ask Walmart, which is offering more than $4 billion to buy a South African retail chain as its foothold into the fast-growing African market.

And Coca-Cola has announced it will spend $12 billion over the next 10 years to improve its production and sales network across the continent. KFC and Subway are already selling their meals to Africans. Top European and Chinese banks are competing for business in Africa, too.

This new scramble for business in Africa has made Wall Street take notice: Africa can be profitable.

These new investments are a significant vote of confidence in the continent’s future. Looking beyond Africa’s image as a poverty-stricken, war-torn continent, Walmart and Coca-Cola are making substantial investments to capture the business of Africa’s rapidly growing middle class.

The companies see statistics that 59 million African households earn at least $5,000 per year and that number is forecast to reach 106 million by 2014. It is a briskly developing market that forward-looking companies do not want to miss out on.

Forget aid to Africa. These new investments may well spur development and economic activity more effectively than charitable donations. Private investment can drive Africa’s economic activity and even help to stabilize Africa’s governance.

This new drive into Africa is different from the rapacious campaign 120 years ago when Europeans flocked to Africa to loot gold, diamonds and other resources. The current influx into Africa is investments by retail companies counting on profits by treating African countries as markets, not as colonies. The global companies are not do-gooders, they are hard-nosed businesses wagering that they can win new sales. These firms have expanded as much as they can in the U.S. and Europe and are looking for opportunities for new growth.

“Africa is the untold story and could be the big story of the next decade, like India and China were this past decade,” said Coke’s CEO Muhtar Kent in Bloomberg BusinessWeek. “You’ve got an incredibly young population, a dynamic population. Huge disposable incomes. I mean, $1.6 trillion of GDP, which is bigger than Russia, bigger than India.”

Of course Africa is not a single country ‚ it is actually 54 separate countries. And the companies will have to negotiate different regulations and conditions in each country. But it is Africa’s combined demographics that are drawing the investment.