Investing in Africa? A Complete Guide to Investment in Africa

    Investment in African Businesses

    Africa was labelled as “The Hopeless Continent” on the cover page of “The Economist” in May 2000. The similar publication put Africa on the cover again in 2011, but this time as “Africa Rising”, and then again in 2013 as “Aspiring Africa”. The journey of Africa from “The Hopeless Continent” towards “Aspiring Africa” is definitely not uneventful. For the emerging markets’ stakeholders, Africa is now the latest destination because of its rapid economic growth. Sub- Saharan Africa had 60% of the total 10 rapidly growing economies from 2001 to 2010. As indicated by the International Monetary Fund there is a chance of another country from Africa to make its way into that list by next year. There is an average of 5-6% per year increment in the economies of most of the African countries from over the last decade. The increment has helped in giving a momentum to the entire African businesses. On the average, the economies of a significant number of African countries have increased by 5-6% annually for the last ten years. This increase in economy gave the whole African continent a momentum. (For more, see: Why You Should Pay Attention to Africa Right Now.)

    Huge Natural Resources of Africa

    Africa has anincredible amount of natural resources. It has about 10% of vast and undiscovered reserves of oil and natural gas of the world, and a significant amount of un-explored hydroelectric power. In Africa, there is an incredible amount of the reserves of iron core, copper, diamond, platinum, uranium and gold.Africa holds about 60% of the world’s cultivable land, but, as of now, just 10% of its land is being utilized for cultivation. Considering all the things, Africa has turned into an attraction for the foreign direct investment (FDI).

    A significant amount of comparatively cheap and educated labour force is another advantage for Africa.There is a vast majority of the Africans in their 20s and 30s from which only a few are dependents, this is because, with youth as the theme, the continent is experiencing a demographic change. It shows that every young and old will play out over the next decade. (For more, see: Demographic Trends and the Implications for Investment.)

    The administration is stable now; the nations that have seen the worst situations of instability have evolved as an example of success. There is an improvement in the trade – because of bankingenergy and investment – better strategies are set up, and therefore, there is an overall improvement in the business conditions.

    As indicated by the UN World Population Prospects report, throughout the time span of the 21st century, the continent of Africa will be the quickest developing continent “by any measures”. Therefore, the stakeholders are attracted towards Africa.

    Stock Reflects the Economic Growth

    The stock exchanges of the Sub-Saharan Africa represents 38 countries and comprises of two regional and 29 overall stock exchanges.There is a lot of diversity in these exchanges regarding the size and the trading volume.African stock exchange comprises of the modest bunch of noticeable exchanges and numerous characterized and listed new and small stocks. With the end goal to boost the exchanges, every country is making an effort by the improvement of the investors’ education and confidence, assessing the funds, and making the methodologies significantly transparent and standardized. The dollar- adjusted returns of September 30, 2014 have been depicted in the table below. The top selected exchanges of Sub-Saharan Africa have been listed.

    Top Performing African Economies

    Nigeria
    Kenya
    Nairobi
    Uganda
    Zimbawe
    Mauritius

    Why Invest in Africa?

    The African continent lacks the “connectors”, such as the roads, the airports, and the ports etc. Almost half of the vegetables and fruit in Africa spoils prior reaching the markets. The companies that can develop the ports, airports, roads and the power grids are guaranteed to prosper. Moreover, the small share of only 3% of Africa’s exchange in the world could only make an increment by the intra-African trade. There is a chance of tremendous development by investing in the local products such as, minerals, coffee, and cotton etc. and increasing the internal trade instead of exporting. Furthermore, there is a huge change in the African customers and a significant increase in Africa’s middle class. With the increase in the middle class, the race for brands is increased. Therefore, the enterprises in Africa are trying to compete with the global brands. In addition, the digital transformations have helped in achieving incredible successes. The organization are reaching the farmers and customers through digital options and this initiative has helped in the successful achievement of the goals. Another reason to invest in Africa is that the economies in Africa are diversifying among commodities. This diversification is in an early stage but is helping the people to invest in non-commodity areas and be competitive. The development of “one-stop shop’ for investors has helped a lot in this case. It helps in the establishment of the local companies. Moreover, because of Africa’s ability of development and embracing the external innovations in addition to its own resources, it has become an attraction for the investors. There is a chance of the development in Africa by the proper use of the arable land and the development the power stations utilizing the different sources such as the wind, solar energy, hydro power, and bio-energy.

    Best Way to Invest

    First thing first, to SAFEGUARD the valuable investment, assistance from a professional and seasoned african investment company should be sought. Footprint to Africa is an investment advisory service and a business news resource.

    There is a diversity in the African stock market and a profound comprehension is essential in order to choose the suitable stock exchange.In order to taste the stock exchange of sub-Saharan Africa, for small stakeholders, it is better to invest utilizing a shared fund or an exchange-traded fund

    Direct Investment in Africa

    The local brokerage account is an easy and straightforward method to get to the African stock exchange.The method of local brokerage account needs to enlist the stock exchanges and also the investors, therefore, it could be a confounded method.The brokerage organizations that take into account the foreign stakeholders from just a single nation comprise of:

    Investing in Exchange Traded Funds (ETFs) or Mutual Funds?

    Diversification and professional management are the various advantages of the investment through the ETFs and mutual funds for trading on the U.S exchanges.A few significant advantages include:

    AFK (The Market Vectors Africa Index ETF)finds out the huge and incredible liquid stocks in Africa. It comprises of around 114 stocks and has a country allocation of the United Kingdom (12%), Nigeria (15%),Morocco (6%), South Africa (20%), and Egypt (21%).

    GAF (The SPDR S&P Middle East & Africa ETF)is apportioned 78% to South Africa, which is followed by the Qatar (7.7%), United Arab Emirates (8%), Morocco(1.6%) and Egypt (4%).

    In the South Africa the telecommunication service industry, financial, consumer discretionary, and service industries, such as, EZA (The iShares MSCI South Africa Index)have designated 99% to middle and huge organizations.

    With a portion of about85%, EGPT (The Market Vectors Egypt Index ETF)assesses to the Egypt, which is the third-largest economy in Africa. The remaining 15% is divided amongst the Luxembourg, Canada, and Ireland.

    The focus of NGE (The Global X Nigeria Index ETF)is in Nigeria with consumer staples, materials, industrials, energy, and financials as the top sectors.

    The shared funds that invest in Africa comprise of the NEPAFRB:LN(Neptune Investment funds II – Neptune Africa Fund),ALQAFBG:LX  (Alquity Africa Fund), JPMAACU:LX  (JPM Africa Equity),INVPNAS:GU (Investec Pan Africa), NAFAX (Nile Pan-Africa Fund A), and CAFRX (Commonwealth Africa Fund).

    Investing in Africa from USA

    In order to choose the African stocks trading in the U.S exchanges, the ADRs (American depositary receipts)is a decent method for the stakeholders.A significant portion of them are natural resources,for example,the DRD Gold (DRD), GFI (Gold Fields),AU (Anglogold Ashanti), HMY (Harmony Gold),SSL (Sibanye Gold and Sasol),and GOLD (Randgold). Except for Sasol, every mentioned organization is in mining. Sasol is in the business of oil and gas.Additionally, MIXT (MiX Telematics) is in the business of the logistics technology.There are significant African stocks which trade on the Pink Sheets or OTC (over-the-counter) market. The pink sheets are less controlled and are exchanged in small amounts.

    Conclusion

    There is a still a lot to overcome in Africa.The instability of politics and society,the absence of the frameworks, and the poverty are the issues.However,the development of the continent on a large scale is expected;progressively, the politics is stable, the economy is growing, and with the better accounting and straightforwardness the banking frameworks are developing.The expanding needs of the increasing middle class are fulfilled by the local organizations.There is no accurate prediction of the development in Africa, however, the Sub-Saharan Africa is balanced for the development.

    The author doesn’t hold any of the mentioned stocks/funds.

    Source: Footprint to Africa

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