London - Three members of Africa’s “youth club” – Rwanda, Zambia and Zimbabwe – offer some of the fastest-growing working populations, if only investors can capitalise on that.

If their demographic trends can be coupled with good education to create skilled jobs and avoid political unrest, this should lead to economic growth quickly enough to lure portfolio investors, some analysts say.

None of the three makes it to the flagship frontier markets stock index, which tracks exchanges a tier below the larger, more established emerging markets. But according to UN projections, their working-age populations will increase by as much as 20 percent by 2020.

This is attracting investors’ attention, even though the precise effect of expanding populations of young workers on growth remains contested.

“I have never paid attention to demographics because I didn’t think it could be relevant on any investor timeframe – I was wrong,” Charles Robertson, the chief economist at Renaissance Capital (Rencap), said.

Rencap recently published a study of frontier markets showing Rwanda, Zambia and Zimbabwe as the top three countries for demographics.

But unsophisticated financial markets and, in some cases, erratic government policies may keep these countries out of the mainstream for some time.

“Liquidity is a big constraint,” Robertson said.

Of the three, Zimbabwe has the largest and most established stock market, which became a favourite with frontier investors last year, hitting record highs. But even here, daily turnover of a few million dollars compares with around $25 million (R257m) in frontier market Nigeria, for example.

Zimbabwe averaged nearly double-digit annual growth between 2009 and 2012 as it recovered under a power-sharing government from economic collapse. But growth has fallen sharply due to shortages of electricity and capital, while less than 20 percent of the working population is in formal employment.

Zimbabwe, shunned by Western governments and funding institutions, has not been able to follow many other African countries in issuing international bonds.

For Danat Abdrakhmanov, a portfolio manager at Eaton Vance, a growing population is not enough for investment. “We want to see rule of law, less regulation, less government. In Zimbabwe, things can only improve,” he said.

Zambia was a forerunner among African countries to issue international debt, launching a $750m bond in 2012.

The bond has not been a great success, with weakness in the copper price – its main export – leading it to underperform other African debt.

Zambia issued a second bond at a higher yield this year, but illiquid local stock markets, a sliding currency and a large budget deficit have kept many international investors away.

Rwanda scores better than the other two countries for ease of doing business and low levels of corruption and debt, and Rencap flags it as a buy.

The country launched a debut dollar bond last year at a yield below 7 percent, which has performed well.

Investors are eager to get into Kigali, but there is even less to buy than elsewhere. The stock market boasts only two companies – brewer Bralirwa and Bank of Kigali – although more are expected to list this year. – Reuters