Investing in Africa

The idea of investing in Africa has long been absent from the minds of many investors since Africa has always been thought of as a massively monolithic, backward region beset by war, disease, poverty, and ethnic conflicts, not to mention political instability and lack of modern facilities and forward thinking. But things have changed and continue to change for the better across many of the 53 African countries, and Africa is now in the process of being the new investment frontier for emerging market and global investors both sovereign and private.

Billions of sovereign and private equity investment dollars have been pouring into Africa every year for the past decade with great returns. Countries such as Russia, South Africa, Britain, Canada, India, Brazil and China have already tapped heavily into this investment frontier and many other countries like South Korea, Singapore, Malaysia, Japan and others will surely follow suite. There are reports that China is actually funding entire transportation infrastructures in several African countries and that Russia is doing similar things and opening banks and other investment funds there. Not long ago, a large Russian-based investment bank – “Renaissance Capital” - launched a billion-dollar pan-African investment fund and was creating “a fully-fledged, pan-regional investment banking, research and asset management operation”, with offices in Lagos and Nairobi. The London-based fund Blakeney Management has investments in Angola, Mozambique and Ethiopia. Also, South Africa’s Pamodzi Investment Holdings has recently launched a $1.3 billion pan-African fund backed by US financial institutions. All of this clearly indicates that Africa’s economy is growing and global investors are taking note of it.

Interest in Africa's emerging economies has been growing steadily for several years as many African nations are making concerted effort towards improving infrastructure, strengthening governance, achieving political stabilities and doing all they can to attract investors. African leaders have recognized the importance of business and economic concepts such as regionalization, global competitiveness, connectivity, privatization, democracy, and free enterprise, which are used by the international investment community for assessing business, trade and economic progress. Accordingly, many African countries have made great strides in the development of their transportation and telecommunication infrastructures. They have also improved upon their financial and banking sectors to allow freer and safer transfers of capital, both within the region and globally. Large global investors have made note of this progress that many African countries achieved over the past decade and have begun investing heavily in countries such as Kenya, Uganda, Ghana, Botswana, Mauritania, Sudan, Morocco, and many others, not to mention South Africa and Egypt. Mali and Tanzania continue to attract mining investments. Many British and other multinational investors are also betting on even small African countries such as Angola, Mozambique and Ethiopia that have managed to pull themselves out of many years of violence and internal conflict.

Here are the main reasons that make Africa the most unique and attractive region for investment today. Some of these reasons have long been recognized and cited by many investors and fund managers, for example the Simba Fund:

1. Africa is the world’s least-explored region from virtually all economic fronts particularly as a market for products, as an overseas destination for outsourced manufacturing operations, and as an investment destination for institutional portfolio capital.

2. Africa is rich in natural resources, particularly metals and minerals, that the world needs, and its resources are increasingly in demand, especially from emerging economies such as China, India, Russia and Brazil, among others.

3. There is minimal competition among companies that investors can take advantage of now before it changes as sovereign and private investors invade Africa.

4. There are low prices for public equities valuations for publicly traded securities.

5. Africa’s governments are now promoting private-sector-led, export-oriented economies and domestic political considerations are becoming less intrusive on the business environment.

6. Africa’s resource-based companies have become more productive and globally competitive.

7. Privatization is reviving key sectors of the economy.

8. The opening of new stock markets and the rejuvenation of existing ones are enhancing the role of capital and so broadening opportunities for portfolio investors.

9. Regional economic cooperation is occurring in many key areas such as infrastructure, development, and transportation.

10. In many instances the banking system is on sounder footing than that of the West since African banking did not get embroiled in the derivatives markets.

Africa is an untapped market that has great potentials for being a hub for large global investors, and many African nations have made significant progress to get the attention of serious entrepreneurial global investors. If African nations continue their progress and the political situation in Africa continues to be under control, investor’s interest will continue and Africa may soon become the new investment frontline offering some of the best short and long-term investment opportunities anywhere particularly in natural resources, mining and agriculture, to mention a few.

Corruption and political instabilities, however, still remain as the main hurdles for economic progress and the biggest risks facing investors in many African nations. As such, investors must choose wisely the countries that they wish to work with. However, selecting the country correctly can be a rewarding and profitable experience.

* With contribution from Bruce H. Pugesek, President of Voyageur Research

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