Africa regional funds attracted $484 million inflows in the first half of 2010, says EPFR Global (www.emergingportfolio.com), and total investment fund allocation to Africa was a record $1.39 billion, according to a report in the Financial Times (www.ft.com). Africa regional funds have enjoyed 43 consecutive weeks of inflows totalling $579m since September 2009, despite the difficult world environment.
The article quotes Cameron Brandt, global markets analyst at EPFR Global: “In terms of sustained interest in Africa, this marks a real turning point.” The new element seems to be global perception.
Koffi Vovor of Kusuntu – Le Club, is quoted as saying: “The South African World Cup has been a major window of opportunity to shed light on Africa and rediscover it. People have started to realise they are perceiving the continent with a 20- to 30-year-old lens.” Kusuntu is an association of diaspora executives that promotes change and investment through private equity in Africa.
Chris Derksen, head of frontier markets at Investec Asset Management, agrees: “Nothing has changed on the continent itself. It’s been the right time to start investing in Africa for 10 years or so.”
The article says that investors are re-evaluating emerging markets, since developed markets themselves started looking risky in the global financial crisis It quotes Sonal Pandit, manager of the JPM Africa Equity Fund at JPMorgan Asset Management: “In the last few years, emerging markets have become more mainstream generally. As they get better known, investors have tried to look at who the next few candidates would be. The African continent still offers a lot of opportunities.”
Africa’s GDP has grown 4.9% a year since 2000, after 20 years of economic stagnation. Collective GDP in 2008 was $1,600 bn – equivalent to that of Russia or Brazil – and combined consumer spending totalled $860bn. Urbanization is nearly as high as China, with 52 cities of more than 1m people. By 2050 it will be home to one-third of the world’s under-25s. It has more middle-class families than India and they are under-penetrated in key areas including telecommunications, consumer goods and financial services.
China is a key growth driver, and trade with Africa has climbed from $10bn in 2000 to $106.8bn in 2008. It is not just exploiting resources, but also investing in infrastructure and the future. According to Ms Pandit, the relationship is symbiotic: “For example, because China wants access to oil and gas exploration in Nigeria, it has been prepared to put down $23bn for 3 oil refineries.”
However, governments need to improve and people to demand more from them. So do the investment structures – capital markets are shallow, many stocks are illiquid, information is scarce and the continent is very diverse. Investec’s Derksen says you need deep local knowledge at the micro level. Or you could invest in companies with a high exposure to Africa but listed abroad. Private equity is another option, but deal flow is not yet strong enough and government incentives are needed to speed the project pipeline.
However change is coming in the next 5 years: capital markets are expanding, diaspora executives returning to Africa for work, and intra-Africa trade growing. The FT cites Derksen: “African capital markets will become much easier to access and the number of investment managers looking at Africa will expand pretty dramatically.”