1. Economies and markets in Africa face challenges – for example Nigeria is affected by the fall in the oil price, and Egypt was affected by the uprising. Liquidity is also a challenge – investors need to be very aware of it.2. Regionalization is a big theme in East Africa – where one economic block includes five countries.3. You need to get good info and you need to validate it.
1. Over the past few years we have made a meaningful impact in the region by committing investment funding of around USD500m across a broad array of investments.2. While private equity investments on the continent remain long term and illiquid, they are giving us net real returns of 2% to 3% above listed assets.3. The real story remains that of the developing consumer market across the continent, driving the growth of the retail sector. These consumer are increasingly accessing services in banking, insurance and mobile telecoms. Housing and infrastructure development also remains a key theme as well as the substantial opportunities in agriculture.
1. Good policy trumps bad politics. How governments attain power matters but what they do with that power matters more in frontier African markets than in emerging or developed countries.2. Diversification works. An African fund open to the wider scope of opportunities than those in the Index should over time demonstrate even lower volatility and greater diversification benefits.
1 We have a dedicated Zimbabwe fund that we started for some investors. Zimbabwe is easy to travel to and they have good infrastructure. It punches above its weight on the continent.2 We have actively debated getting an Arabic speaker. Big companies in Egypt generally produce reports in English and Arabic, but not all of the companies do this – some only produce reports in Arabic.3 The broad growth story in Africa is in tact – but growth is going to be very cyclical and won’t always be steady – there will be volatility. Retail investors contribute to liquidity – if a market has active retail investors it is likely to be more liquid.
1. Embrace volatility: it can be your friend as it creates both buying and selling opportunities.2. Given the tough operating environment, investing in companies with strong management teams and a good history of execution is important.3. Don’t panic: distinguish between structural (permanent or long term shifts) and cyclical (shorter term) changes.
1. On-the-ground representation vital: Africa is a continent of 53 states, including island nations. It cannot be treated as one market.2. Bottom-up research crucial: Many major companies in Africa are monopolies or duopolies. Others enjoy significant advantage because of high barriers to entry into their sectors. But strategic factors are only half the story.3. A long view essential: Africa rewards long term investors rather than tacticians. To derive significant gains, investors must show patience and be prepared for occasional reverses. Macro factors may be positive - but the delivery of bottom-line benefits will take time; in some cases, decades.