Africa has long been avoided by most investors who didn’t want to risk their assets on uncertain investments.
But now that could be about to change in a world of low yields as the spotlight falls on Africa as a place to make decent profits.
Russell Investments says that for many years investors regarded the continent as having an unfavourable investment environment despite the size and the growth of the continenet’s equity markets.
And their figures show that before the global economic downturn the performance of investments in Africa had poor returns.
But now that is changing.
Improving reputation
Though the continent was once renowned for its political instability and long-running violent struggles which were matched with a reputation for uneven levels of development, poor infrastructure and a lack of technical skills, the firm says most of these issues have been addressed.
Some investors still believe that most of the continent is underdeveloped, which is hampering Africa’s economic rise and growth of its equity markets.
The firm says there have been successful initiatives to stabilise and strengthen African economies and instigate collaborations between African equity markets. These have not only created viable investment opportunities but it’s also a sector that investors should be looking to.
Russell Investments say that African frontier equity markets now exceed the equity markets of Europe and America by market capitalisation.
They add that up to 2009, the continent’s markets had less favourable returns than other frontier markets.
In 2010, however, their Russell Frontier Africa Index outperformed other developed and emerging markets around the world.
Land of opportunity
Though Africa has failed to keep pace with its gains, so did most other markets.
And, despite a slow recovery, they actually outperformed the frontier Europe region in 2010 and 2011.
As a result, claim the firm, Africa has a combination of ‘unusual characteristics’ for its performance and size as well as sectors which make it unique among frontier regions.
Another potential attraction for investors is that the region has a concentrated sector breakdown with 80% of its efforts focussed on just two sectors.
Those are Consumer Staples and Financial Services, though the firm says that because there are few major companies working across borders, most firms are still family-based, that the main sectors are skewed towards geographic centres and not across the continent as a whole.
While noting that African investments had struggled since 2008, the frontier region may present strong opportunities for investors willing to broaden their portfolio and add some risk.
They make particular note of Nigeria, Botswana, Ghana and Tanzania for potential investors looking for countries which have enjoyed good growth and have strong sector performance.
