Investing in Africa: The World's Last Great Opportunity

In the eyes of the investment world, Africa is widely viewed as complete basket case. Comparisons with Asia-which also suffered the indignities of colonial exploitation on which Africa blamed its many economic failures- is particularly irksome. The World Bank estimates that real income per head in the 48 countries of sub-Saharan Africa between 1960 and 2005 rose on average by only 25%. In East Asia, real income rose 34 times faster. In the 1950s, high tech South Korea was as poor as Ghana and Kenya. Today, South Korea is the world's 9th largest economy -

Africa today evokes images of grinding poverty, natural disasters and appalling infrastructure. Over 70% of Nigeria's 140 million citizens live on less than $1 a day. Congo's infamous child soldiers fight in country wracked by violence. Somalia is a failed state whose civil war is spilling over to Chad. Zimbabwe's Robert Mugabe has taken the mantle from Uganda's Idi Amin as the new millennium's poster child of an African dictatorship. Add to this the region’s world beating political corruption – the most recent example, last week's farcical elections in Nigeria- and its clear why investors want to stay clear of Africa. By all measures, Africa appears to be a colossal flop.

Investing in Africa: The Surprising Good News

"People love China and India, like Asia, are skeptical about Latin America and hate Africa” opined accurately the manager of one of the few African investment funds.

This conventional view, however, is surprisingly inaccurate. Over the past decade, parts of Africa have taken baby steps towards greater prosperity, security and democracy. Snake oil “African socialism” of the 1960s has been supplanted by private enterprise and freer markets. Even Nigeria- today the most corrupt nation on earth is -by conventional standards- a macroeconomic success. Nigeria's annual GDP growth had more than doubled between 2003 and 2006 to an average of 7.3%. Inflation is down to single digits last year. And thanks to boom in oil exports, foreign exchange reserves are approaching $50 billion.

Nor is Nigeria alone. For the third year in a row, sub-Saharan African countries grew on average by 6% and are nudging toward 7% this year. At this rate, Africa's poverty rate will halve by 2015. Take India and China out of the equation, and sub-Saharan Africa is actually growing faster than Asia.

High oil and other commodity prices have provided a much needed tailwind to African growth rates. But here's the surprising news: non-oil producing African countries are recording similar rates of growth. Thanks to pragmatic government policies and an emphasis on tourism, Kenya is one of Africa’s fastest growing economies-despite having no commodities. Zambia's copper exports are complemented by agricultural exports. Africa is even beginning to boast an emerging middle class. In Nigeria, mobile-phone penetration is 8% and rising fast. Optimists hope that a combination of debt forgiveness, improving infrastructure, and accumulated financial reserves have combined to create a momentum that could keep going even after the commodity boom turns.

Investing in Africa: Making a Mint in the Stockmarkets

Another surprise: the handful of few investors who can access African stockmarkets are making a mint. Between 1995 and 2005, African stocks showed compound annual growth of 22%. Last year, the stock market in Kenya rallied 46%, and the local index is up 9x in dollar terms over the past ten years. In 2006, equities in Morocco were up 75%, 69% in Uganda, and 55% in Botswana. Nigeria's stock market's capitalization has doubled over the 12 months to about $45 billion.

How is this all possible? Turns out that African companies are some of the most profitable and fastest growing in the world. Ditto mutinationals that dare to do business in teh region. Consider the case of Millicom International (MICC), a Luxembourg based mobile phone company that has proven its ability to make money hand over fist in some of the toughest markets in Africa. Skeptical? The stock is up a whopping 89-fold since 2002. And it has a long way to go.

Turns out the very reasons not to invest in Africa – political uncertainty, corruption, poor infrastructure – mean that the firms that do succeed are some of the savviest around. Yet thanks to the “Africa discount,” indiginous African companies trade at half the levels of the Western counterparts.

Investing in Africa: China Yet Again

While much of the West ignores Africa, the Dark Continent has a new eager suitor in China. China’s president Hu Jintao recently set off on an eight-nation tour through Africa, promising of $3 billion in soft loans and a doubling of Chinese aid by 2009. In the last 12 months alone, China’s leaders have visited 48 African nations.

China's efforts are not borne of feel good development policies, but of pure economic self-interest. China needs Zambian copper, Nigerian oil, Tanzanian timber and South African platinum to achieve superpower status. The Chinese strategy is built on largess- a savvy exercise of “soft power.” Chinese investment has paid for roads in Ethiopia; financed the building of 100
schools and 30 hospitals in Liberia; rebuilt Angola’s once-famous Benguela railway; and set up a road-building program in Mozambique. Chinese investment has already revitalized large parts of Africa and parts of Africa have much better infrastructure than they did just a few years ago.

And China's efforts are paying off. Trade between China and Africa soared 40% to a record $55.5 billion last year. Direct investment has reached a cumulative $6.5 billion. A whopping third of Chinese oil now comes from Africa.

Investing in Africa: The Last Great Opportunity

Africa is widely perceived as poor and corrupt. But the best investment opportunities lie where perception differs from reality- where things aren't as bad as they seem. Africa fits that bill perfectly. It's hated, it's undervalued, it's difficult to invest in. It reminds me of how much of how former Communist Eastern Europe and Russia were viewed in the early 1990s. As Hermitage Capital founder- and Russia's largest investor- Bill Browder observed: “Russia is sh*t. But as long as it gets a little less sh*tty, I make a lot of money.” That's why his investors have made 25x on their investment money in the last 10 years- and Browder walked away with over $160 million in 2006 alone. If that's not an incentive to look at Africa, nothing is.

Comments

[jfsully:]

Even thought the name and marketing concept on this ETF are nice, I think the composition of the index leaves a lot to be desired.

It should be pointed out that the countries are:
Morroco - 6.25% (not sub saharan)
Egypt - 5.69% (not sub saharan)
Jordan - 2.86% (not sub saharan)
Israel - 18.77% (certainly not sub saharan)
South Africa - 65.69% !!!!! (subsaharan BUT why not invest in the SA ETF?)
Bermuda .72% (not since tectonic shifts has this been part of Africa)

This doesnt look like a broadbased play on developing sub saharan africa from a country standpoint? Where is Nigeria, Zamibia, Angola, Ethiopia, Kenya, Uganda, Botswana etc?

Just because the name is good doesnt mean the ETF is good.

2007 May 03 01:09 PM

[Jason:]

All very well, but where do I find out how to get in? That is the information I need, but can't find.

2007 Oct 16 12:40 AM

[aokay:]

I agree. Good article, but how do you invest in these markets? iShares only has one South Africa ETF. Any ideas how the average investor can invest in these markets from North America? By the time this becomes more mainstream, the easy money will have been made.

2007 Oct 27 01:03 PM

[HenryK:]

AS one who born on African continent I share some of the views expressed in this article about investing in Africa. Howevr, this writer for some reasons, withheld the most valuable piece of information-how to invest in Africa. Is there a reason why this information is available?

2008 Jul 06 01:58 PM

[Stanley Ijeoma:]

Vital Electricity Statistics: Nigeria

Population (Current)----------- Approx. 150 Million
Population (Projected) 2050 ----- 350 Million
Land Mass---------- Approx. 923,770 sq km
Installed Electricity Generation Capacity.-------- 6000 Mega Watts
Peak National Demand-------- Approx. 60,000 MW
Current National Grid Supply ------Less than 2500 MW
Short Fall ---------- More than 50,000 MW
Average Electricity Supply Hours (last decade) ---- 4-5 hours/day

Schrodinger Nigeria Limited seeks to drive a paradigm shift from dependence on fossil fuel powered generators in Nigeria to renewable energy solutions by setting up Renewable Energy Products and Services One-stop-shops throughout the country. The one stop shops will be designed as demonstration sites to promote the use of renewable energy technologies and Energy Efficiency Products and to also serve as resource and information centres to educate both the public and private sector through hands-on and interactive examples.
Schrodinger has identified the "Initial Cost versus Integral cost" factor in all of these. Nigeria is about the 7th largest market in the whole world and number one destination for all manner of fossil fuel powered electricity generators worldwide, despite our huge deposit of natural and environmental resources.
The pilot one stop shop will be located in Abuja FCT and subsequently rolled out into other cities/communities creating a network of centres that serve as much of national population of 150 million people as possible, including remote and rural areas. The one-stop-shops will provide an opportunity for the local residents to be at the forefront of using proven renewable technologies such as wind /small hydropower, solar thermal and Photovoltaic as well as contribute to the reduction of carbon emissions nationally. Nigeria’s economy has been described as “Carbon Economy”; what with the unending and “Goat-Head” policy of gas flaring in the oil rich Niger Delta and the short fall in the national grid electricity supply of more than 50,000 MW being made up by millions of head-cracking and fossil fuel guzzling & GHG emitting electricity generators!
The concept of a renewable energy products and services one stop shops is unique in Nigeria as there currently is no such enterprise in the country. There is an obvious need for such a service as public awareness of renewable energy technologies and their benefits, both economically and environmentally is generally very low. In addition to supplying retail renewable energy products, the centres will also offer project management and consultancy services.
The proposed project aims to raise awareness of these technologies and consequently increase their use by embarking on an aggressive marketing strategy that includes both traditional i.e. print and electronic media as well as other cutting edge methods i.e. mobile phone marketing. Other marketing strategies include the development of a referral program that encourages satisfied customers to promote our products and services e.g. by rewarding them energy efficient products i.e. compact fluorescent light bulbs and/or discounts on future purchases. In addition to providing individual household or business solutions, community (i.e. neighbourhood) scaled and “business cluster” solutions will also be provided to reduce initial costs and promote communal sense of ownership of the projects.
The pilot one stop shop will be entirely powered by a solar-wind hybrid application to demonstrate that the generation of renewable energy (electricity) is quite feasible & a practical reality that is cost effective in economic, environmental and public health terms.
Technical partners who would supply all the technical equipment and products as well as consulting and capacity building i.e. staff training, would be engaged as soon as funds are made available. The only obstacle holding this project/proposal down is funding, funding, and funding!! Highly unexplored in this clime, this means opportunities exist to positively impact the Economy, Public Health, Environment as well as making huge returns on any investment made .
Please if you know where funds could be accessed either as soft loans, equity or venture capital investment; please pass the info across.


About the "Creativity beyond Intelligence" Company:
Schrodinger Nigeria Limited, incorporated 30/10/2006 and a member of the Lighting Africa Initiative of the World Bank/IFC lightingafrica.org ; is a start - up company that is passionate about solving Nigeria's intractable electricity problem using Renewable Energy Resources to generate/supply electricity Off-Grid to power the National economy. In doing this, Schrodinger is conscious of the collateral damage done to Nigeria's Economy as a result of the national electricity crisis and the abuse the environment is subjected to-also Public Health hazards, as a consequence of depending on Fossil fuel powered generators www.guardiannewsngr.co.... Schrodinger believes that it is only an Off-Grid Alternative Green Electricity Generation (OAGEG) approach that can strike the "Triple E" delicate balance between Energy Security, Economic Empowerment & Environmental Protection.
Schrodinger participated in the Lighting Africa Development Marketplace (DM) competition for the design and delivery of low cost, high quality, non-fossil fuel-based lighting products targeting low income consumers in Sub-Saharan Africa. The DM is part of the broader Lighting Africa program managed by the World Bank Group which seeks to reach 250 million customers with modern, affordable lighting by 2030. Even though, we were not short listed as one of the finalists, we were invited and participated in the first global business conference for off-grid lighting in Africa in Accra, Ghana in the first week of May, 2008. The conference was designed to showcase and expand business opportunities targeting low income populations in Sub-Saharan Africa.

About Stanley:
Stanley Ijeoma, (B. Sc) Applied Chemistry, 2002. Working in the Business Development Units of Private Sector Organizations -until the official incorporation of Schrodinger Nigeria Limited, means Stanley has got a very deep knowledge of the huge Market that is Nigeria and also the mentality of the people that drive the dynamics of this Nigerian market. An Alumni of University of Calabar and based in Abuja, Stanley has established bridges and contacts in the Government, Public and Private Sectors and hopes to bring these goodwill to bear in his vision to take Schrodinger to the next level. Stanley has often been described by colleagues and friends alike as being tenacious and incurably committed to ideas and ideals he believes in. In the course of his research that looked into the Nigerian electricity crisis and the dependence on fossil fuel electricity generators by businesses, homes and offices; he identified the "Initial Cost Versus Integral cost" factor influencing the choice of Fossil Fuel ahead of Renewable Energy. Knowing this is highly unexplored in this clime and that opportunities exist to positively impact the Economy, Public Health, Environment as well as making huge returns on any investment made in the process, he set up Schrodinger Nigeria Limited in late 2006 to be able to provide renewable energy based solutions and tap into the extant opportunities beneath the terrible and intractable electricity supply/distribution crisis. He has since been building alliances/partnerships in his quest to promoting the ‘’Creativity beyond Intelligence’’ brand to the highest level possible.

You are welcome to contribute towards the success of this emerging "Creativity beyond Intelligence" brand. Individual investors, soft loans/grants organizations and venture capitalists are welcome.

Stanley Ijeoma
Chairman/CEO
Schrodinger Nigeria Limited
Abuja,FCT.
schrodinger.limited@gm...
[phone]
[phone]
"Creativity Beyond Intelligence"

schrodingerr.com


***Climate change is a serious threat to development everywhere.......rever... the existing trends of global warming is the defining challenge of our age.*** --Ban Ki-Moon.

2008 Aug 20 08:00 AM

[African vir...:]

AVI offers an opportunity for investors across the globe to particpate in the lucrative stock markets. An investor from across the gobe can log in , register and open account at avi-investors.com and get quality information of African companies listed on different stock markets and also be able to even buy different shares

Aug 16 08:39 AM