Africa Offers great rewards for foreign investors

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."

Africa is Rising Fast

This article from Hannes Van Rensburg is of interest to Business people.

Africa is changing for the better. In the past decade, Africa’s growth rates have quietly been approaching those of Asia. Last year, according to estimates from the International Monetary Fund, seven African countries appeared on the list of the world’s 10 fastest-growing economies, each with annual growth rates of 8% or more. Democracy is becoming firmly entrenched, with all but a few of the continent’s 1 billion people expected to vote in this year’s democratic elections.

Child mortality rates have decreased significantly, with 12 countries reporting declines of more than 4.4% per year. Polio was eradicated in most parts of Africa and now AIDS contagion levels are beginning to recede. Millions of men and women are healthy again and back to work, and more children—especially girls—are in school than ever before.
Poverty is also on the decline. According to a recent McKinsey report, Africa already has more middle-class consumers than India, which has a larger population. And by 2030, the African Development Bank estimates that most African countries will boast middle class majorities, taking consumer spending to $2.2 trillion a year.
Lack of roads or infrastructure is becoming less of a barrier to the exchange of information. The new undersea fiber optic cable EASSy (Eastern Africa Submarine Cable System) links 21 African countries—including Ethiopia and Sudan for the first time—to the rest of the world, bringing broadband connection and making mobile phones the continent’s new drumbeat. Nearly 90 percent of all phones in Africa are mobile and by the end of 2012, global cellphone association GSMA estimates there will be over 735 million mobile subscribers on the continent.
Although mainstream American media has not reported these bright trends, corporate America has been following Africa’s recent growth path more closely. Global corporations are investing heavily in this promising new Africa. One example is Walmart’s acquisition of Massmart, which sets the world’s leading retailer on track to expand in sub-Saharan Africa. IBM recently opened offices in more than 20 African countries, including an Innovation Centre in South Africa. Google reportedly is expanding web-infrastructure all around the continent, including the launch of an IT incubation center in South Africa. Some early birds are already reaping results. Amazon’s investment in a lab in Cape Town a few years ago has produced the development of the company’s first cloud offering.
Visa’s acquisition of Fundamo, the Cape Town-based mobile money platform I co-founded 10 years ago, is another good example. When we started Fundamo, we could not anticipate the transformational effect mobile money would have in Africa. It brought mobile network operators and banks together to take advantage of the exponential growth of mobile phones ownership in Africa, ushering in a movement that has revolutionized the way financial services reach unbanked and under-banked people in developing economies.
Over the last decade, 100 million people have been newly ‘banked’ using mobile technology, many of them in Africa, and according to Juniper Research, this number is expected to double to 200 million by 2013. Today, there are more than 100 mobile money deployments worldwide, enabling millions of unbanked and under-banked consumers to pay bills, buy airtime and goods, and send money to relatives living far away.
For mobile network operators, financial institutions, platform providers and technology developers, mobile money became a powerhouse of profitability, showing that there is good business in lifting the poor out of poverty and connecting the unbanked to the formal financial system—a case that non-profit organizations have been making all along. The proof is in the numbers: Kenya’s Safaricom reported a significant increase in total revenue last year with M-Pesa, their mobile money program, generating nearly one-third of the company’s profits.
For Africa, mobile money represents the potential for an enormous leap forward in development. It helps include people previously in the shadow of the informal economy and increases government earnings that can fund social and economic development. It delivers access to formal financial services and brings the security and convenience of electronic payments to millions of people in developing countries, breaking the cash economics that often locks them into poverty. It can enable entire industries, creating jobs and revenue streams that didn’t exist a decade ago.
The mobile money industry has also triggered a new wave of development, inspiring the creation of many secondary businesses, ranging from innovative financial services to the provision of utilities and digital goods. The progress mobile money ignited in Africa is now making inroads into other continents, particularly in developing economies in Asia, such as India, Bangladesh and Pakistan.
The time has come to fuel the mobile money virtuous cycle and to reach the more than one billion consumers in Africa and beyond that have access to a mobile phone but do not have a formal bank account. To do that, our community will have to come together and build a global mobile money industry that is future-proof, offering the interoperability necessary to finally connect African consumers to the global economy.


Hannes van Rensburg (@Rensburg) is Founder and CEO of Fundamo and Group Country Manager, Sub-Saharan Africa, for Visa Inc. He will be a speaker at Techonomy 2012 in the session, “Africa: The Final Frontier.” Follow and tweet about the conference using the hashtag #techonomy12.