How to invest wisely in Africa
2019-02-01 00:00:00 -
Business
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Kunle Aderemi

 

Africa’s journey from when it was tagged as the ‘The Hopeless Continent’ on the cover of The Economist in May 2000 to December of 2011, when the same publication used ‘Africa Rising’ as its headline (followed by ‘Aspiring Africa’ in March 2013) has been anything but boring. The continent has become the hottest destination for emerging market investors. From 2000, according to the World Economic Forum, half of the world’s fastest-growing economies have been in Africa.

 

Africa remains incredibly rich in natural resources. It has huge, untapped reserves of natural gas and oil (10 per cent of world reserves) and largely unexploited hydroelectric power. It is home to vast gold, platinum, uranium, iron ore, copper and diamond deposits. Currently, only a tenth of Africa’s arable land is being cultivated, yet it holds around 60 per cent such land in the world.

 

Africa also has the advantage of a large and relatively cheap educated labour force. The continent is undergoing a demographic transformation, with youth as its theme; there is a very high proportion of Africans in their 20s and 30s with fewer dependents – both old and young – that will play out over the next decade.

 

There is also stability in terms of governance; the countries that witnessed terrible periods of unrest have emerged as success stories. There are better policies in place, trade has improved and so has the business environment. As such, Africa has become a magnet for foreign direct investment (FDI).

 

According to the World Economic Forum, by 2030 over 40 per cent of Africans will belong to the middle or upper classes, and there will be a higher demand for goods and services. In 2030, household consumption is expected to reach $2.5trn, more than double that of 2015’s figures.

 

Much of that $2.5trn will be spent in three countries: Nigeria, Egypt and South Africa. But Algeria, Angola, Ethiopia, Ghana, Kenya, Morocco, Sudan and Tunisia will also attract companies seeking to enter new markets.The sectors expected to grow the most in the next 30 years are food and beverages, education and transportation, housing, consumer goods, hospitality and recreation, healthcare, financial services and telecommunications.


African stock markets come in different flavours, and they require deep understanding to select the appropriate stock exchange. Investing through a mutual fund or exchange trade-funded (ETF) is a better bet for small investors looking to taste a bit of sub-Saharan Africa.

 

The way to directly access African stocks is to open a local brokerage account. This can be a bit complicated, as investors need to shortlist stocks, as well as stock exchanges.

 

Investing via ETFs and mutual funds comes with the built-in advantage of ease (traded on US exchanges), diversification and professional management. Some of the prominent ones are the Market Vectors Africa Index ETF (AFK), which tracks some of the largest and most liquid stocks in Africa; the SPDR S&P Middle East & Africa ETF (GAF), which allocates 78.39% to South Africa; and the Global X Nigeria Index ETF (NGE) which concentrates on Nigeria with financials, consumer staples, energy, materials and industrials as the top sectors.

 

Africa still has a lot to combat. Political and social unrest, lack of infrastructure and poverty are common problems. But the bigger picture portrays the continent’s progress. Increasingly, there is political stability, economic growth, and advances in its banking systems, with better accounting and transparency. There is increasing demand from its growing middle class, and local companies are filling that need expanding. Nobody can predict the growth trajectory with accuracy, but sub-Saharan Africa is poised for growth..

 

Kunle Aderemi is an Africa-focused FDI expert based in the UK. He can be contacted at info@fodionconsultants.co.uk.

 

TAGS : Africa Business
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