Should you invest in Africa's future?
Africa has long been trailed as the
ultimate long-term, speculative investment. As the troubled continent finally
fixes its endemic economic problems and develops, profits should start to flow
and stock markets rise.
That argument is now rapidly gaining
ground – and more investment opportunities are opening up for British
investors.
There was evidence this month of the
interest in Africa, despite the recent political and social unrest. Fund
managers and analysts from around the globe flocked to Cape Town to attend the
2013 Investing in African Mining Indaba – the world's largest mining investment
event.
Mining and natural resources,
however, are merely one component of the investment story of a continent where
more than a thousand languages are spoken, and to climates ranging from hot
deserts to frozen glaciers.
Mark Mobius, executive chairman of
Templeton Emerging Markets Group, said: "It is positive that the much
publicised calls to nationalise mines in South Africa have finally been
dispelled, but the economic growth drivers in Africa are as diverse as
information technology, solar electricity, beer and cut flowers. We are also
interested in industries and sectors tied to the rising power of the consumer,
like banking services, telecommunications, food and beverages."
Mr Mobius, whose Templeton Africa
Fund, launched in May 2012, had produced a return of 14pc by the year end,
points out that the International Monetary Fund (IMF) has projected that 10 of
the 20 fastest-growing economies during the next five years will be in
sub-Saharan Africa and two will be in north Africa.
Nigeria, where average income per
capita has quadrupled since 2000, is becoming particularly popular with
specialist fund managers after consistent annual growth rates of around 7pc.
Other countries with growth potential include Sierra Leone, which grew more
than 20pc last year, Ghana and Kenya.
Emily Whiting, the client portfolio
manager for the emerging markets equity team at JP Morgan Asset Management –
whose Africa Equity fund has produced a return of 60pc since launch in May 2008
– said: "Over a period of at least the next five years, I would expect
specialist African funds to outperform more general global and emerging market
funds as we are seeing the same fundamental developments that we saw in the
more developed emerging market economies in the Eighties and Nineties.
"Growth is from a very low
base, the private sector is becoming a broader part of the economy and
financial markets are opening up."
Investors keen to buy into the
African story now have a range of options, although some of these involve
venturing outside the security of UK regulation. The specialist African funds
offered by Templeton, JP Morgan and Investec are Luxembourg-domiciled but those
offered by Neptune and JM Finn & Co are UK-based.
Tellingly, however, it is hard to
find financial advisers who recommend any of these funds, and their main
reservation is not so much where they are based but the fact that African
markets are notoriously illiquid. The 2009 closure of New Star's Heart of
Africa fund only 15 months after its launch is commonly flagged up as a health
warning in this respect.
Philippa Gee, the managing director
of Philippa Gee Wealth Management, the financial adviser, said: "Africa is
a completely different ball game to other investment regions and is only suitable,
in my opinion, for sophisticated investors, not mainstream retail investors.
"Too often people quote the
potential, saying you could make 50pc, but bear in mind that you have the
potential to lose far more than that, and for most investors that is a step too
far."
Most financial advisers recommend
that anyone determined to gain exposure to Africa should take a more diluted
approach, investing in more broadly based global or emerging market funds that
can take advantage of opportunities in the area as and when they see fit
without being locked in. These rarely offer an exposure of more than a few per
cent, but some go higher.
For example, the First State Global
Emerging Market Leaders Fund is 17pc invested in Africa and the BlackRock
Frontiers Investment Trust is 24pc invested there. The Truestone Global Impact
Fund, which is 21pc invested in the continent, also provides an interesting
ethical alternative.
But such holdings are not
substantial enough to satisfy everyone, so Emerging Europe Middle East and
Africa (EMEA) funds offered by the likes of Fidelity and JP Morgan can be worth
considering as halfway houses.
The UK-based Fidelity EMEA Fund,
which is around two-thirds invested in Africa, has produced a return of 42pc
since launch in February 2008, and Mark Livingston, investment director for
emerging markets at Fidelity, is adamant that the achievement "has all
been about liquidity" – the ability to buy and sell investments when you
want to.
He said: "Africa is a great
story and I wouldn't be surprised if it beat Asia in terms of economic growth
over the next five years. But liquidity will always be an issue if you are
100pc invested there, and if you go for global emerging market funds instead,
you won't actually be invested enough there to benefit."
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