Opportunity knocks!

I want to pose some questions to my fellow Africans in the Diaspora: Do you invest on the stock markets? And when you consider investing in stocks, how often do you consider African companies or exchanges? How often does your broker suggest investing on African stock exchanges? If you have a private pension plan, have you ever checked your mutual funds to see whether there are African companies listed? Your answers are, let me guess: ‘Never’ or ‘almost never’ never and ‘no’.

There are 20 stock markets in Africa with listings from 26 African countries. Some of the listed companies are billion-dollar companies such as the Nigerian banks created through the recent consolidation of that country’s banking system. Others such as South African Breweries (SAB), which acquired the American brewing giant, the Miller Brewing Company (yes, could you have imagined 20 or so years ago that an African company could buy its American counterpart?!). SABMiller, as it is now known, is now a global firm with six brands among the top 50 in the world! AngloGold Ashanti has shown up on many mutual fund lists, but most investors never realised they had money in an African firm.

Of the 20 African stock exchanges, South Africa is by far the largest and most liquid. The Johannesburg Stock Exchange (JSE) has a market capitalisation of $561 billion, while the other exchanges have a combined capitalisation of $70 billion. Only five of the non-South African exchanges do more than $1 billion in trades daily. To boost their liquidity, the JSE has encouraged African companies to double list on the South African exchange. So far, a Namibian company has taken them up on this deal, and the JSE expects many others to follow. The JSE has also encouraged their African counterparts to join the World Federation of Exchanges (WFE) because meeting its stringent membership criteria makes investors more likely to see them as world class. The Johannesburg, Mauritian and Egyptian bourses are already members of the august body. The JSE is helping Nigeria join as well.

Africa is considered by investors as a largely untapped and promising resource – ‘frontier market’ in investor-speak. Just as the Nigerian banks grew suddenly through consolidation, experts believe there is enormous potential from investing in successful African firms that are not currently listed on any exchange, but which offer high potential for growth and profit. Data show that the average yield on investment on African exchanges approached 30 per cent before the recent global economic downturn. Banks have long led the way among successful African companies, followed by breweries. More recently, cement and construction companies, as well as telecoms are drawing favourable investor attention.

Quite often, the news reports on Africa that we read about in the newspapers and see on our television screens are all on famine, conflict and disease. But that picture painted by the western media is just a small fraction of the reality on the ground. Behind those depressing headlines lies business opportunity for all. According to the latest forecast by the International Monetary Fund (IMF), eight of the world’s fastest growing economies in 2010 will be in Africa. Those with the business courage and foresight have already embarked on an African odyssey and are reaping the rewards. Consider an American equity firm investing $1.2 billion in several African funds since 1999 and posting a return three times its initial investment a few years later.
Africa’s agriculture sector is largely subsistence-based and largely under-developed, but is set to boom as Asian, European and Middle Eastern countries invest in the continent to boost food security in their own backyards. A South African company (as usual) is investing about $100 million in agricultural projects in various locations in the region. You can’t go wrong with food, because we eat everyday!

For investors prepared for the long haul — and most dedicated African portfolio managers talk in terms of three to five years — Africa’s growth remains a compelling attraction, especially given stagnant economies elsewhere. 2010 should bring major developments and compelling investment opportunities which include the finalisation of Nigerian banking reforms, oil coming on stream in Ghana, an improving Zambian economy in tandem with improved copper production/ prices, an increasingly diversified Mauritian economy, as well as reduced trade barriers, and taxes in Kenya With banking, beer and telecom penetration trailing many emerging market peers the future is bright as Sub Saharan Africa (ex SA) is expected to surpass 5 per cent GDP growth in 2010, spurred on by an increasingly benign environment.

Therefore we, as Africans in the Diaspora with enough disposable (but albeit modest) incomes can take advantage of the improving economic and business climate to make modest investments and in the process help build our respective countries’ economies.

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One Comment

  1. Castro,You are a die hard Africanist, rooting for the continent eh!. The problem is one of trust, both in African governments and institutions. The second is the incompetence of the companies – take for example Ashanti Goldfields and what Anglogold did to it with the help of Goldmans, I wonder what investors made of it.In addition, the concept is a bit foreign, especially at this point in history. The SE itself is not readily or easily accessible to people. Even folks like us with a bit of knowledge and education and access to financial information still need brokers (few of them around) to help us navigate the hoops, how much more the rest of the population? A more indigenous concept of mobilising funds for trading and building companies will be more patronised, I think. Frederick Kwoba, a US national has come up with the DENI concept (Direct Expatriates National Investment), very novel idea of wealth creation which the World Bank and UNDP consider as "out of the box" initiative but no African govt has been brave enough to takle it up, huh!!! We need to think outside the box as Africans and develop indigenous products that suits our people in order to mobilise all the unused capital lying around, where the people themselves control them rather than it being controlled by governments or big corporations because we distrust them. A reason South Africa is way ahead may be due to the fact that their SE is probably "white" controlled and driven ( I stand to be corrected but I suspect this might be the case). Let the conversation begin. Cheers.

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