African pension fund capital has reached $340bn and is growing rapidly. In addition, increasing adoption of insurance around the continent is causing insurance company investment portfolios to grow, and they are now estimated to be around $270bn. These figures come from the Bright Africa 2015 report, released today by RisCura, which looks at the drivers, enablers and managers of investment on the continent.
Rory Ord, principal at RisCura says: “This creation of local pools of capital and the advent of intra-African investment means that Africa is its own key investor.”
Ord says that investors looking at Africa 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 in a stage of playing catch-up to the rest of the world on 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 are interacting 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. Africa’s investors want to know the most effective ways to harness Africa’s growth.
“Investors have realised that Africa is by no means homogenous,” says Ord.
The 2015 report, the third edition of Bright Africa, seeks to provide some insight into these areas.
The continent has been divided into nine investment ‘regions’, taking into account culture, geography, language and historic trade links. The report shows key economic metrics for each of these regions, analyses the export and import makeup and sets out the key trade partners around the globe. It also analyses the state of African infrastructure, a key enabler of growth, and benchmarks road, rail and electricity compared to other parts of the world.
“We show that the makeup of GDP is quite different to the makeup of exports, that trade links with former colonial powers remain largely intact and that China has become a major African trade partner,” Ord says.
Listed equity attractive in many sectors
According to Bright Africa, listed equity markets on the continent continue to improve, with investment managers reporting better liquidity in recent times. Numbers of listed companies, fees and tough listing requirements remain issues to be solved, but several exchanges around the continent are revising these rules. Listed market pricing remains attractive in many sectors, given the expected growth of these companies, and the pricing of companies across sectors mirrors those in developed markets. In addition, 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.
Ord concludes: “Africa from an investment perspective is by no means a finished product. It is messy, under-capitalised and undergoing rapid change. But in a world of low growth and mature markets, it is essential for global minded investors to understand its potential.”
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