Drivers, enablers and managers of investment in Africa
Africa’s investors have become markedly more sophisticated in recent years. They understand that the continent is one of the world’s fastest-growing regions and that populations are young and urbanising. They also understand that Africa is rapidly adopting technology, is increasingly connected, and is playing catch-up to the rest of the world in terms of living standards.
Investors looking at Africa today want to understand this exciting continent in more detail. They want to look past the headline GDP numbers, and understand what is really happening in the countries and regions within the continent, and how they interact with the rest of the world.
The stage of economic development, the reliance on commodities, and the state of physical infrastructure also play an important role, as does understanding the state of local investment, the depth of markets, and how market dynamics are affecting company valuations. Lastly, Africa’s investors want to know the most effective ways to harness Africa’s growth.
RisCura’s Bright Africa research, seeks to answer some of these questions by providing insight into the drivers, enablers and managers of investment on the continent. The research explores the status of local pools of capital as a major driver of Africa investment, and finds that African pension fund capital has reached $330bn and is growing rapidly. Increasing adoption of insurance is causing insurance company investment portfolios to grow, and are now estimated to be around $270bn. The creation of these local pools of capital, and the advent of intra-African investment, means that Africa is one of its own key investors.
In Bright Africa the continent has been divided into nine meaningful investment regions, taking into account culture, geography, language and historic trade links. We show key economic metrics for each of these regions, analyse the export and import makeup, and highlight Africa’s key trade partners around the globe. The report further analyses the state of infrastructure, a key enabler of growth, and benchmarks Africa’s road, rail and energy against other parts of the world. The report demonstrates that the makeup of GDP is quite different to the makeup of exports, highlighting that trade links with former colonial powers remain largely intact and that China has become a major African trade partner.
Investment management focused on both listed and unlisted markets continues to mature year–on-year. Listed equity markets are showing some improvement, with asset managers reporting better liquidity in recent times. Numbers of listed companies, fees and tough listing requirements are issues that remain to be solved, but several exchanges around the continent are revising these rules. We find that listed market pricing remains attractive in many sectors, given the expected growth of these companies, and that the pricing of companies across sectors mirrors those in developed markets. We also show that investing in Africa through non-African exchanges can give exposure to African resources.
Private equity remains a key route for investors to access consumer facing companies, as well as industrials and even infrastructure. The support of global and African DFIs remains strong and is increasing, but these DFIs are now investing alongside pension funds, endowments and family offices from several places around the world as well as domestic African capital.
In conclusion, Africa from an investment perspective is by no means a finished product. The continent is under-capitalised and undergoing rapid change. But in a world of low growth and mature markets, its opportunities continue to outweigh its challenges. Understanding the drivers, enablers and managers of investments on the continent is a great place to start.
RisCura is a global, independent financial analytics provider and investment advisor. Our clients include institutional investors with over $200 billion in assets under advice, as well as a significant number of asset management, hedge fund and private equity firms. RisCura works with the largest African investor base in listed and unlisted African investments on the continent.