Why Channeling Your Funds To Africa May Be The Best Investment Decision For The Decade

Includes: AFK, EZA, GAF
by: ResearchCows

Africa has emerged out of the woods and is offering many and varied investment opportunities, incorporating all classes of investors. From just a few hundred dollars to an unlimited amount, you will be sure to obtain a rate of return of above 10%. African economies are looking for you, are you ready to enjoy the benefits of investing offshore?

Having gained from industrialization after colonization in the early to late 19th century, the continent is ready for takeoff. The key sectors to invest in are manufacturing, mining and services sectors. Many potential investors have missed this cake by basing their investment decisions on unfounded rumors that have made them stereotype it as 'The Dark Continent'

However, the continent is springing up as a major investment destination. At the onset of the millennium, the continent had started to attract attention from the East, that is Asian countries. The continent had been under constant watch for long from western countries that had been the colonizers decades earlier. However, increasing competition for resources in the recent past has seen many multinationals open up branches here, which has altered the perception of the international community.

As of today, there are over 85 multinational corporations which have set foot in the continent. Out of these, 47 have kicked off their operations from the year 2000. In total, there are over $12 billion in direct investments in the continent. According to a survey by Infotrak Harris in 2009, 95% of the multinationals managed to break even within the third year of operation. The other major channels of investments are acquisitions, mergers and takeovers. Due to poor management in some corporations, takeovers have successfully turned around some of these corporations into profit-making ventures. Looking at Kenya Cooperative Creameries for example, the corporation was rescued at the brink of collapse in 2006 by a multinational named BAC LLC. As of today, the corporation is worth over USD 580 million.

For an individual investor, national securities exchanges are available. With the leading stock exchange- the South African Johannesburg Stock Exchange, investors can leap an average of 8.55% annual return from an investment as small as $500. The best entry points are IPOs; though targeting major corporate events such as buyouts can be very strategic. The three most attractive sectors are the manufacturing, mining and services sectors. The average price for stocks of these companies is $35 with dividends as high as $2.80 per share recorded in some of these stocks. Leading minerals in the African Continent include gold, diamond and bauxite.

Another dimension is that there is an emerging and very vibrant agricultural sector. The continent is slowly but consciously shifting to agribusiness and traditional farming methods are being discarded for the highly attractive modern techniques. Given that the agricultural sector employs over 80% of the African population, growth in this sector is phenomenal. Over the past five years, 12 African governments have set pools of funds to boost the development of this sector. In addition, these governments have exempted tax on exports of these products. For the international community, these governments provide farming space at half the commercial rates. This translates to low production costs; which can be equivalent to 75% of the cost of producing the same quantity in European countries.

Africa is surely a hot destination for investments; the continent has registered an impressive 5.4% growth in GDP over the last three years. The business climate has now been transformed into a very attractive one. There is an emerging middle class which is responsible for an unprecedented increase in consumer demand by over 15% since 2009.

However, not all countries are candidates for investments. In West Africa for example, there are constant political upheavals with countries such as Ivory Coast, Togo and Burkina Faso witnessing coups for every change of government. Therefore, it is wise to invest in Eastern or Southern African countries. Top countries to invest in these two parts of the continent are Rwanda, South Africa, Malawi, Kenya and Lesotho. In these countries, there has been relative peace and propriety coupled with political goodwill.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The article has been written by an Analyst at ResearchCows, ResearchCows is not receiving compensation for it (other than from Seeking Alpha). ResearchCows has no business relationship with any company whose stock is mentioned in this article. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the company's SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.