Investors Look To Africa

Via The Globe and Mail, an interesting report on African investment opportunities.  As the article notes:

“…Emerging markets are looking downright emerged these days, with their healthy finances, growing diplomatic clout and pricey stock markets. Now, some investors are casting their gaze upon a new opportunity: Africa.

Long known as a resource-rich region to international mining firms, Africa’s economy has been turning heads recently for other reasons.

The Economist magazine found that six of the world’s 10 fastest-growing economies over the past decade were in sub-Saharan Africa, with growth rates rivalling those in Asia. Over the next five years, African growth in percentage terms is likely to surpass Asia’s.

Some observers are even raising the possibility of an emerging African consumer culture – a tantalizing prospect given the size of the region’s youthful population. This brings with it some intriguing possibilities for investors who can handle a few bumps.

“The fundamentals are terrific,” said David Creighton, president and chief executive officer at Montreal-based Cordiant Capital, an emerging markets fund manager for institutional investors.

“The biggest driver over the next five years is you have 200 million people who are going to be moving from subsistence living up to the land of disposable income. And we know what happens when that takes place.”

According to a recent United Nations report, gross domestic product per capita in Africa doubled between 2002 and 2008. If the growth rate persists, then per capita GDP will double again by 2013.

One encouraging sign is growing cellphone usage across the continent. As wireless has exploded in popularity, business transactions and money transfers are becoming easier, providing an excellent foundation for a more efficient economy.

Multinational companies are positioning themselves for good things ahead. Coca-Cola Co. KO-N is betting big on the region, with plans to spend $12-billion (U.S.) over the next decade as it adds beverage plants to take advantage of rising disposable incomes.

Wal-Mart Stores Inc. WMT-N agreed to buy Johannesburg-based Massmart Holdings Ltd. in September for $4.6-billion, giving the U.S. retailer access to 288 stores in 14 African countries. While that might not be a huge amount of money for the world’s largest retailer, it nonetheless signals that companies can no longer afford to overlook Africa.

Can individual investors overlook it? Africa remains largely a high-risk frontier market beyond South Africa, which certainly raises a number of obstacles to investing in the region.

“When you think of impressive African economic growth and the commodity boom and all that, the markets that you can directly invest in are pretty limited,” said William Sterling, managing director and senior portfolio manager at New-York based Trilogy Global Advisors.

One of few Africa-focused exchange-traded funds, the Market Vectors Africa Index ETF AFK-N focuses on companies with headquarters in South Africa, Egypt, Nigeria and Morocco.

South Africa, in particular, is home to many companies with operations throughout the continent. One favourite of many emerging-market fund managers is Naspers Ltd., a South African Internet and pay television company that is expanding into a number of sub-Saharan countries.

Some strategists see advantages in taking an indirect approach by picking companies that are doing a lot of business in Africa but are headquartered elsewhere.

Pierre Lapointe and Alex Bellefleur of Montreal-based Brockhouse Cooper point out that for Africa’s economy to reach higher levels, the region is going to have to improve its infrastructure “on a massive scale.”

“This means that Africa could be on the cusp of an investment boom, which would benefit global infrastructure companies active in the region,” they said in a recent report.

Canada’s SNC-Lavalin Group Inc. SNC-T is one of those active companies, completing more than 800 projects in 52 African countries. In 2009, African projects – mostly related to commodities extraction – accounted for nearly 15 per cent of the Montreal-based firm’s overall revenue, making the region its biggest revenue-driver outside of Canada.

Beyond infrastructure, consumer goods company Unilever NV UL-N has found that developing markets are the only places it can increase sales, and Africa fits into its growth plans. The supply chain services company UTi Worldwide Inc. UTIW-Q , which began in South Africa, has 67 offices in seven African countries, which delivered about 16 per cent of the company’s sales last year.

And there’s always the beer play: SABMiller PLC, the international brewer that started as South African Breweries LTD., derives about a third of its sales from Africa with operations in 16 countries.

That makes the African market about equal to that of Europe in terms of SABMiller’s beverage sales. But in terms of potential, Africa is poised for bigger things.”

This entry was posted on Saturday, February 19th, 2011 at 1:16 am and is filed under Uncategorized.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.