AFRICA: THE NEXT GREAT HOPE
A question that is frequently asked, both by clients and in the media, is where speculative investors should put their money. Investors want to know what’s next. As they realize that markets such as China can’t always keep moving up they want to find the “next” China and make a profit while they can.
Well here is an idea that’s not for the faint-hearted.
Are You Joking?
Africa usually conjures up images of hunger, drought, disease and poverty. Add this to political corruption and a seemingly endless list of coups and counter-coups to seize power, and it doesn’t sound like a particularly good prospect. The most positive visions that most people have of Africa are of the unusual species of animals that live there and the safaris that provide a wonderful view of creation. Most of us imagine an impoverished, backward continent that is relatively untouched by modern technology. Think of the classic movie from the early ‘80s, The Gods Must Be Crazy.
Investments
Yet, despite the perceptions mentioned above, Africa is appearing more and more in the sights of many visionary investors.
Jason Voss, CFA, writes in SeekingAlpha.com, “Of Africa’s 54 nations, only four are experiencing dangerous conflict. In fact, more than half of African nations have held democratic elections since 2006. Additionally, multiparty democracy continues to take hold across the continent.”
Africa is loaded with potential. With its abundance of natural resources, and after years of finally figuring out how to monetize these assets, strong economic growth has been seen recently throughout the region. But it’s no longer just about natural resources. Voss quotes the CEO of the private equity firm Development Partners International, Runa Alam. He says, “Alam also highlighted that Africa is a continent growing by addressing its own internal economies and not just growing by exploiting its natural resources/commodities. In fact, she pointed out that Ethiopia is growing gross domestic product (GDP) at a rate of more than 15%, and yet, it has very little commodity wealth. Continent-wide, many entrepreneurs are specifically founding businesses to address the burgeoning middle class of Africa, which is estimated at 313 million people.”
In addition, many western countries that loaned the African nations billions of dollars have decided to give them debt relief, either by forgiving the entire debt or creating very favorable repayment terms. This has given these upstart economies a clean slate and the opportunity to start off on the right foot. With this in mind, many companies dealing with the construction of basic infrastructure, including a number of Israeli concerns, have opened up shop in Africa.
In fact, many of the perceptions that we have of Africa, mentioned above, are actually correct to a certain extent. For many of its inhabitants, clean water is still non-existent, basic foodstuff is very limited and there are no roads. Although international investment in Africa has picked up, it has been mostly focused on building the basic infrastructure in these countries. It is not a question of technological innovation that would rival that of Israel. Rather, this investment is involved in supplying the very basics to Africans, things that we all take for granted.
How to invest?
While many African countries have made great strides, the financial markets in most of these places are still very small and illiquid. For example, it is not yet realistic to open an investment account in Nigeria. The best way for investors to take part in this potential boom is by focusing on international companies that have committed large sums of money to build the continent’s infrastructure, Exchange Traded Funds that track African indices or they could invest in mutual funds that have a presence in the area. For more information on how to go about this, it is worthwhile asking your financial adviser to help you find the most appropriate investments.
However, always remember – this type of investing is quite speculative, and although it does have tremendous potential, it also contains a high element of risk, leading to the loss of much, if not all, of your initial investment. You need to see how this fits in your investment profile, and invest with caution.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net) a registered broker/dealer, Member FINRA, SIPC, MSRB, SIFMA. For more information, call (02) 624-0995, visitwww.aaronkatsman.com or email aaron@lighthousecapital.co.il.
