Africa sees investor confidence grow
Saturday, 1 September 2007
Ruth Sullivan
Investing in Africa has traditionally not been for the faint-hearted, but investors are beginning to see opportunity in the continent, particularly in sub-Saharan countries.
Signs of a more favourable investment climate are emerging as economies strengthen and diversify, fuelled by the commodity price boom and lower debt levels, currency stability improves and fiscal governance begins to tighten.
A recent spread of democracy in sub-Saharan countries is also apparent, helping to drive some political, social and economic accountability. "There has been a major change in sovereign governance, the political climate is changing and the spirit of democracy is spreading through sub-Saharan Africa," says Roelof Horne, Cape Town-based fund manager for Investec's Africa funds. "More than 60 per cent of countries in Africa are now functioning democracies," he says.
Africa's GDP growth has averaged about 5 per cent annually over the past six years, according to a recent report from the Organisation of Economic Co-operation and Development (OECD), while the organisation's real economic growth forecast for 2007 averages more than 6 per cent. African GDP growth has also exceeded that of OECD GDP growth from 2000.
"It is one of the faster growing regions of the world and this period stands out in Africa's history. It is a momentous change," says Mr Horne.
Investec set up its early bird funds at the end of 2005 with its Pan Africa Fund -- including South African equities -- and Africa Fund, excluding South Africa, and investing in the shares of African businesses listed on the continent's stock exchanges and elsewhere. Looking ahead, Investec is "building up a pipeline of investments with private equity at the forefront".
Africa is being viewed as the last big investment frontier and opportunities for investment are growing. Portfolio investors have not been quick to see the opportunities. "It's not a large enough playing field for big investment yet and the old perceptions of Africa still remain," says Mr Horne.
Many challenges still face the investment community and each country needs to be assessed separately in terms of risk, political instability and economic drivers. Many African countries do not have stock exchanges yet and those that do are largely typical of frontier markets, lacking in liquidity and ease of trading. But their number has grown dramatically in the past few years, as has the number of companies listed.
As yet there is no internationally recognised pan-African index, although this may change as the local stock exchanges grow.
South Africa's Standard Bank sees a strong investment case for the region. Its asset management arm, Stanlib, has just launched two Africa funds globally -- one pan-African and the other South Africa only -- in response to demands from investors in Europe, the UK and the Middle East, it says.
The Standard African Equity Fund will invest in equities in 14 stock markets across the continent, including Egypt, Botswana, Ghana, Namibia, Nigeria, Uganda and Zambia. It is expecting to add Angola and Rwanda next year.
John Mackie, head of Stanlib's Africa investing, expects the fund to reach $300m over the next three years, and is hoping to bring in family offices and hedge funds. Stanlib, which has $45bn in assets under management, has been investing across Africa for more than 20 years. "It is all about growth prospects, which are phenomenal," he says.
"There is a big gap between perception and reality," he adds. "Ten years ago Zambia was a poor indebted country but investors will be snapping up sovereign bonds this year."
As Africa is coming up on the radar more funds are being set up, says Jonathan Chew, UK chief executive at Imara, an asset manager specialising in Africa. "There is a bit of a scramble looking for people who know the continent and how to run money there," he says.
Imara runs three long-only African equities funds. The $120m African Opportunities Fund, launched in 2005, invests in all of Africa but minimises exposure to South Africa and Egypt as both markets are correlated globally. Most of the continent's exchanges have low correlation to global markets, and do not move with the fluctuations of the dollar, reducing risk in a portfolio. Imara also has a Nigeria fund and a white-knuckle-ride Zimbabwe fund.
Investors include family offices, US endowment schemes, hedge fund managers -- often on their own account -- private client managers and a UK local authority pension fund.
Resources have traditionally been the focus for investing in Africa. It has 60 per cent of the world's proven resources of diamonds, 40 per cent of its phosphate, 30 per cent of cobalt and 7 per cent of the world's oil and gas reserves, according to Deutsche Bank research. Yet the funds focusing on the continent are not looking exclusively at resources. A fast growing demand for goods and services is leading to an attraction to the growing financial, consumer and infrastructure sectors.
"Our Africa funds are not just a resource story, we invest in consumer industries and financial services as well as mining and resources," says Mr Horne.
Some potential investors worry that Africa's growth pattern may be cyclical, although it is early days to determine this. Mr Horne is optimistic. "We think Africa can continue to perform very well and the growth phase we are experiencing in Africa is of a structural nature."
--FT Syndication Service
Investing in Africa has traditionally not been for the faint-hearted, but investors are beginning to see opportunity in the continent, particularly in sub-Saharan countries.
Signs of a more favourable investment climate are emerging as economies strengthen and diversify, fuelled by the commodity price boom and lower debt levels, currency stability improves and fiscal governance begins to tighten.
A recent spread of democracy in sub-Saharan countries is also apparent, helping to drive some political, social and economic accountability. "There has been a major change in sovereign governance, the political climate is changing and the spirit of democracy is spreading through sub-Saharan Africa," says Roelof Horne, Cape Town-based fund manager for Investec's Africa funds. "More than 60 per cent of countries in Africa are now functioning democracies," he says.
Africa's GDP growth has averaged about 5 per cent annually over the past six years, according to a recent report from the Organisation of Economic Co-operation and Development (OECD), while the organisation's real economic growth forecast for 2007 averages more than 6 per cent. African GDP growth has also exceeded that of OECD GDP growth from 2000.
"It is one of the faster growing regions of the world and this period stands out in Africa's history. It is a momentous change," says Mr Horne.
Investec set up its early bird funds at the end of 2005 with its Pan Africa Fund -- including South African equities -- and Africa Fund, excluding South Africa, and investing in the shares of African businesses listed on the continent's stock exchanges and elsewhere. Looking ahead, Investec is "building up a pipeline of investments with private equity at the forefront".
Africa is being viewed as the last big investment frontier and opportunities for investment are growing. Portfolio investors have not been quick to see the opportunities. "It's not a large enough playing field for big investment yet and the old perceptions of Africa still remain," says Mr Horne.
Many challenges still face the investment community and each country needs to be assessed separately in terms of risk, political instability and economic drivers. Many African countries do not have stock exchanges yet and those that do are largely typical of frontier markets, lacking in liquidity and ease of trading. But their number has grown dramatically in the past few years, as has the number of companies listed.
As yet there is no internationally recognised pan-African index, although this may change as the local stock exchanges grow.
South Africa's Standard Bank sees a strong investment case for the region. Its asset management arm, Stanlib, has just launched two Africa funds globally -- one pan-African and the other South Africa only -- in response to demands from investors in Europe, the UK and the Middle East, it says.
The Standard African Equity Fund will invest in equities in 14 stock markets across the continent, including Egypt, Botswana, Ghana, Namibia, Nigeria, Uganda and Zambia. It is expecting to add Angola and Rwanda next year.
John Mackie, head of Stanlib's Africa investing, expects the fund to reach $300m over the next three years, and is hoping to bring in family offices and hedge funds. Stanlib, which has $45bn in assets under management, has been investing across Africa for more than 20 years. "It is all about growth prospects, which are phenomenal," he says.
"There is a big gap between perception and reality," he adds. "Ten years ago Zambia was a poor indebted country but investors will be snapping up sovereign bonds this year."
As Africa is coming up on the radar more funds are being set up, says Jonathan Chew, UK chief executive at Imara, an asset manager specialising in Africa. "There is a bit of a scramble looking for people who know the continent and how to run money there," he says.
Imara runs three long-only African equities funds. The $120m African Opportunities Fund, launched in 2005, invests in all of Africa but minimises exposure to South Africa and Egypt as both markets are correlated globally. Most of the continent's exchanges have low correlation to global markets, and do not move with the fluctuations of the dollar, reducing risk in a portfolio. Imara also has a Nigeria fund and a white-knuckle-ride Zimbabwe fund.
Investors include family offices, US endowment schemes, hedge fund managers -- often on their own account -- private client managers and a UK local authority pension fund.
Resources have traditionally been the focus for investing in Africa. It has 60 per cent of the world's proven resources of diamonds, 40 per cent of its phosphate, 30 per cent of cobalt and 7 per cent of the world's oil and gas reserves, according to Deutsche Bank research. Yet the funds focusing on the continent are not looking exclusively at resources. A fast growing demand for goods and services is leading to an attraction to the growing financial, consumer and infrastructure sectors.
"Our Africa funds are not just a resource story, we invest in consumer industries and financial services as well as mining and resources," says Mr Horne.
Some potential investors worry that Africa's growth pattern may be cyclical, although it is early days to determine this. Mr Horne is optimistic. "We think Africa can continue to perform very well and the growth phase we are experiencing in Africa is of a structural nature."
--FT Syndication Service