May 31, 2011

BRIC Becomes BRICS – South Africa as a Gateway to the Continent

Recently, South Africa has been in the news for its invitation to the third summit meeting of the BRIC club – a group named after its members’ initials (Brazil, Russia, India, China) which for many investors has represented the most compelling opportunities in Emerging markets over the past decade. The invitation of South Africa changes this group to the BRICS, and represents a diplomatic victory for President Jacob Zuma.

However, the invitation left some scratching their heads, as South Africa’s relative size and growth makes it a less significant player in the global market than its larger companions. South Africa’s population is estimated to be around 50 million residents – a substantial number, but only enough to make it the 25th largest country by population. In comparison, Russia has 139 million residents, Brazil has 203 million, India has 1.2 billion, and China has 1.3 billion – all substantially more than South Africa alone. The economies of the original BRIC countries are also substantially larger – Brazil and Russia’s GDPs exceed $2 trillion, India’s exceeds $4 trillion, and China’s is approaching $10 trillion. South Africa’s economy is comparably small at just over $500 billion, and is expected to grow at a relatively modest rate in coming years.

Given all this, including South Africa as a ‘BRIC’ economy on its own may seem counterintuitive, especially when countries like Mexico, Turkey, or even Indonesia are larger on a population and GDP basis. However, we believe South Africa’s inclusion makes absolute sense, as South Africa is an excellent gateway for investment across Africa as a whole.

Many investors agree that the opportunity for investment in various sectors and economies across the continent is substantial. However, we often hear that barriers to entry for businesses in Africa are typically high. At times, companies that see opportunity in Africa face legal and logistical challenges in establishing and maintaining operations as well as building markets for their products in Africa’s various (and varied) economies. In order to combat this challenge, many companies are choosing to work through South Africa in establishing a presence on the continent.

Take for example the recent purchase of Massmart by Wal Mart. Wal Mart has chosen to establish a presence in Africa via an existing firm in order to take advantage of its experience in the South African market. However, from an investor’s perspective the opportunity for Wal Mart is not limited to South Africa. Rather, Massmart is a compelling acquisition because it is well positioned to expand into the remainder of the continent. As we have previously written, the opportunity for retailers to tap into Africa’s growing consumer class is substantial, and firms that are able to be at the forefront of the trend could see substantial rewards. Many South African firms are thus positioning themselves as market leaders in telecommunications, banking, retail, and other industries where growth is expected to be strong.

In addition, South Africa is often used as a base for natural resource firms which operate in other parts of the continent. South Africa’s regulatory environment is well developed and transparent, and often serves as a good base of operations. In fact, recent tax law changes in South Africa have demonstrated the country’s desire to be a gateway to the rest of Africa. In many ways South Africa’s regulatory environment is more similar to that of the developed world than its fellow BRIC economies. As a recent Ernst & Young study indicates, many investors’ perception of the various large economies in Africa strongly favors South Africa for its attractiveness - 59% of the survey’s respondents see South Africa as the ‘most attractive’ country for investment in the continent.

Perception Gap Chart | Africa Investments

In addition, it should not be overlooked that the invitation for South Africa was a strategic decision by the other BRIC members. As trade between emerging markets (the so called south-south link) increases, the original BRIC members want to be perceived as open and welcome to South Africa, and the rest of the continent. Because South Africa is currently Africa’s largest market, it is often involved in the preponderance of these south-south flows. Thus, including South Africa in the BRIC club is a sign that the other members want to do business with the continent.

Therefore, while South Africa viewed independently may not seem like an opportunity which is comparable to the other BRIC economies, Africa as a whole is an opportunity on the same scale as India or China. It’s inclusion in the BRIC club is thus a harbinger of Africa’s growing role in the Emerging Markets, and its importance for Emerging Market investors.

May 27, 2011

Investment News Highlights Africa’s Remarkable Returns and Low Volatility

A pair of recent articles in Investment News’ magazine have again highlighted the opportunity in Africa for investors seeking strong returns with low volatility. In the first, found here (free subscription required to view) the author notes that investors might be surprised by the “remarkable returns” and “low volatility” that Africa has seen over the past decade, and points out that:
“Over the 10-year period through December, the Africa Composite Index produced an average annual return of 17.3%, with volatility as measured by standard deviation of 11.9%.
By comparison, the MSCI Emerging Markets Index over the same period had an annualized return of 13.2% with a standard deviation of 24.7%.
The S&P 500 over the same period had a negative annualized return of 0.5%, with a standard deviation of 16.4%.”
The article also highlights opportunities in commodities, noting that “the continent contains 13% of the world’s oil reserves, 50% of proven gold reserves, 50% of iron ore reserves, 60% of cobalt, and 90% of platinum group reserves.” Consumer growth and infrastructure are also mentioned as strong investment opportunities.
The second article (found here) notes that “although all the usual preconditions and warning related to risk apply here, there is no denying the market’s allure” It also points out that:
“Some market analysts already have started lumping Africa in with the emerging BRIC economies of Brazil, Russia, India, and China. In fact, Goldman Sachs Asset Management chairman Jim O’Neil, who is credited with coining the BRIC term, is among those who think that African nations could surpass Brazil and Russia as the next hot emerging markets.”
In both articles the opportunity for investing in Africa is very favorably presented, with one even speculating that Africa could be the next Asia for investors.
In the view of Nile Capital Management, a key message in each of Investment News’ articles is what a surprise Africa may seem to be. At Nile Capital Management we have been analyzing Africa’s growth, and have been aware of the opportunity for investors for some time. However, much of the investment community is still learning about how compelling investment in Africa could be. This to us makes the opportunity for investing in Africa even stronger, as increasing awareness is likely to drive up valuations. This will be beneficial for investors who are involved on the continent already.
In fact, Investment News points out that:
“Part of the valuation appeal at the individual company level is due to the limited coverage of African stocks by Wall Street…Because Africa is so poorly covered in the media, most investors probably would be surprised to learn that there are more than 100 companies on the continent whose annual revenues exceed $1 billion. What’s more, Africa is home to nine of the world’s 15 fastest-growing countries.”
However, as investors come to understand the opportunity for investing in Africa, it will be important for them to select the most compelling stories across the continent. For example, although there are over 2,000 equities listed across Africa’s 24 public markets, Nile Capital seeks to invest in somewhere between thirty and forty of them at any time.
Nile Capital Management’s research team looks across the continent for investments which trade at a compelling values and have strong long-term growth prospects. This active selection process means we seek to invest in what we deem to be the ‘best’ opportunities on the continent. We therefore believe that the selection of what we see as the best opportunities in Africa will help investors share in Africa’s growth while managing risk.
As interest in investing in Africa continues to gain momentum, Nile hopes to remain poised to assist long term investors look for returns on the continent. Articles such as these simply help reinforce what we believe: there are substantial returns to be made in Africa, and we seek to participate in the opportunity.
For more information about investing in Africa, please contact Nile Capital Management at (646)367-2820 or We know Africa - from Cairo to Capetown.

May 23, 2011

Africa Poised for ‘Explosive’ Frontier Market Growth: Consultant Advises 1-2% Overall Allocation

In an article found here Asset International magazine (a subsidiary of PlanSponsor) notes that Africa “may provide some of the most robust investment opportunities for funds.” The article notes that investment plan consultants have been strong supporters of investment opportunities in the continent, and quotes prominent consultant Adam Tosh saying that “over the next five years, exposure to Africa should make up 1-2% of a total investment portfolio.” The author also highlights a previous article which recommended that “institutional investors look to smaller emerging markets to boost returns.” The earlier article pointed to research begun in January 1997 which found that that a basket of non-BRIC emerging markets had outperformed the BRICs by 39%. A similar story exists for Africa. As you can see here, a composite of some of Africa’s largest stock exchanges has significantly outperformed other emerging markets over the past decade, while a providing a lower standard deviation of returns. Thus, the opportunity for investment in emerging markets beyond the BRICs – notably Africa - is compelling both on a pure return basis, as well as from the standpoint of added diversification. For more information about investing in Africa, please contact Nile Capital Management at (646)367-2820 or We know Africa - from Cairo to Capetown.

May 19, 2011

Financial Times: Africa Ripe for Reappraisal

An article published yesterday in the Financial Times (available to subscribers here) has one again highlighted the opportunity for investing in Africa. The article notes that after rebounding from the financial crisis, “sub-Saharan Africa is increasingly viewed as an opportunity rather than a burden.” For example, the article quotes a bank executive attending the World Economic Forum in Cape Town, who noted that “whereas a decade ago such meetings focused on aid and AIDS, the conversation was now about investment and growth.” The article highlights the importance of natural resources for Africa’s growth, as well as interest from other emerging nations: “Growth has been spurred by market liberalisastion and improved public management of finances as well as a boom in the commodities that Africa has in abundance. Perhaps the biggest factor has been the engagement of emerging powers including India and Brazil but led by China. Asian demand for African resources has engendered a revival in the terms on which the continent trades.”
However, the article points out that natural resources are only a part of the story for investors who see opportunity in Africa, noting: “The story is no longer just about resources. The commodity price surge has coincided with the rapid expansion of banking, telecommunications and other services formerly weighed down by the dead hand of the state. This and the sluggish pace of recovery in the developed world have encouraged investors from elsewhere, including Europe and the US, to look at Africa with different eyes.” In addition, the article highlights the consumer growth story (which we have discussed previously here and here, noting that: “Consumer spending is also rising at more than twice the rate of developed countries. The phenomenal growth in telecoms has pointed to a market that few consumer groups and service industries had thought about much before – and one that, if North Africa is included, now exceeds 1bn people.” In fact, the article cites a recent research report by management consultancy A. T. Kearney, which noted that executives at packaged goods companies should no longer be thinking about whether to enter the region, but where and how they should do so. For more information about investing in Africa, please contact Nile Capital Management at (646)367-2820 We know Africa - from Cairo to Capetown.

May 11, 2011

Nile Pan Africa Fund Assesses Its First Year Performance, Points to Low Correlation With Other Indices

For a full copy of our shareholder letter, please email us at

In its letter to investors, Nile Capital Management (NASDAQ:NAFAX) advisor to the Nile Pan Africa Fund, believed to currently be the only actively managed mutual fund that focuses exclusively on the continent of Africa, provided a review of the Fund's first year of performance and portfolio characteristics. The firm also drew attention to the launch of its investment blog Money Watch Africa, which provides commentary and analysis of the investment landscape and opportunities in Africa.

"We are pleased to report that the Nile Pan Africa Fund not only outperformed the MSCI Frontier Markets Index during its first year of operation, but also showed low monthly correlation to the index and what we believe is an attractive risk profile. We believe these characteristics make the fund a compelling investment tool for investors who are looking for deeper diversification of their global portfolios," said Larry Seruma, the fund's manager and chief investment officer of Nile Capital Management.

From its inception on April 28th, 2010 through April 30th, 2011, the Fund gained 22.07% annualized. During the same time period, the MSCI Frontier Markets Index gained 9.94%, the Dow Jones Africa 50 Titans Index increased 11.07% and the S&P 500 Total Return Index advanced 16.67% annualized.

The Fund also showed low monthly correlation to the S&P 500 (0.72) as well as the MSCI Frontier Markets Index (0.48). The Fund's annualized standard deviation (based on monthly returns) was 16.77% -- lower than the S&P 500 (18.09%) and MSCI Frontier Markets (17.21%), indicating a favorable risk profile for the Fund.

Nile Capital believes that the fund's first year results bolster the case for investing in Africa and the firm's active management approach to investing in the continent based on fundamental research on the ground.

"While growth in developing nations is slowing down, Africa's growth is projected to be in excess of 5% through 2015, yet it continues to be an under-researched and under-invested region. We believe our on-the-ground research adds value by uncovering attractive investment opportunities, while managing the risks," added Seruma.

About Nile Capital Management, LLC

Nile Capital Management, the Advisor to the Nile Africa series of funds, is a New York-based asset management firm with in-depth investment expertise that covers the entire African continent, from Cairo to Cape Town. By focusing on Africa, the company seeks to identify and capitalize on the best investment opportunities in the continent and expand investors' access to emerging/frontier markets. Additional information is available at

Nile Pan Africa Fund (NAFAX) Performance, April 2011
As of April 30, 2011. Inception Date is April 28, 2010.

Nile Pan Africa Mutual Fund

The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. As stated in the current prospectus, the Fund's total annual operating expense ratio (gross) is 4.17% for Class A shares. The Fund's investment adviser has contractually agreed to reduce its fees and/or absorb expenses of the fund, at least until July 31, 2011, to ensure that the Total Annual Fund Operating Expenses After Fee Waiver (exclusive of any acquired fund fees and expenses, borrowing costs, taxes and extraordinary expenses) will not exceed 2.50% for Class A subject to possible recoupment from the Fund in future years. Please review the Fund's prospectus for more detail on the expense waiver. Results shown reflect the waiver, without which the results could have been lower. A Fund's performance, especially for very short periods of time, should not be the sole factor in making your investment decisions. For performance information current to the most recent month-end, please call toll-free 1-877-68-AFRICA.

Investors should carefully consider the investment objectives, risks, charges and expenses of the Nile Pan Africa Fund. This and other important information about the Fund is contained in the prospectus, which can be obtained by calling 1-877-68-AFRICA. The prospectus should be read carefully before investing. The Nile Pan Africa Fund is distributed by Northern Lights Distributors, LLC member FINRA. Nile Capital Management, LLC is not affiliated with Northern Lights Distributors, LLC.

Mutual Funds involve risk, including possible loss of principal. Because the Fund will invest the majority of its assets in African companies, it is highly dependent on the state of the African economy and the financial prospects of specific African companies. Certain African markets are in only the earliest stages of development and may experience political and economic instability, capital market restrictions, unstable governments, weaker economies and less developed legal systems with fewer security holder rights. Adverse changes in currency exchange rates may erode or reverse any potential gains from the Fund's investments. ETF's are subject to specific risks, depending on the nature of the underlying strategy of the fund. These risks could include liquidity risk, sector risk, as well as risks associated with fixed income securities, real estate investments, and commodities, to name a few. Non-diversification risk, as the Funds are more vulnerable to events affecting a single issuer. Investments in underlying funds that own small and mid-capitalization companies may be more vulnerable than larger, more established organizations.

Dow Jones Africa Titans 50 Index: Measures the stock performance of 50 leading companies that are headquartered or generate the majority of their revenues in Africa. Stocks are selected to the index by float-adjusted market capitalization, subject to screens for size and liquidity.

Standard Deviation: Measures the degree of variation of monthly returns around the mean (average) return. The higher the volatility of the investment returns, the higher the standard deviation will be.

Correlation: Measures how closely the investment tracks an index.

The S&P 500 Index: An unmanaged composite of 500 large capitalization companies. The index is widely used by professional investors as a performance benchmark for large-cap stocks.

The MSCI Frontier Markets Index: A market-capitalization weighted index of 26 emerging market country indices.

You cannot invest directly in an index.

May 3, 2011

Wall Street Journal Highlights Africa’s Growing Middle Class

An article in the Wall Street Journal yesterday (found here) highlighted the growth of Africa’s middle class, and notes that in terms of size, as a whole the middle class is on par with that of India and China.

The article notes:
Over the past decade, the number of middle-class consumers in Africa has expanded more than 60% to 313 million, according to a new report from the African Development Bank Group. The study—one of the first efforts to document the contours of Africa's emerging consumer class—brings into focus a potentially huge and enticing frontier market for global investors.
The article includes the below chart from the African Development Bank Group (ADBG), which shows growth in the middle class, and the share of each of Africa’s countries that considered a part of that class.

Growth of Africa Middle Class | Frontier Market Investing

The ADBG notes that the middle class in Africa – those who make $2 to $20 per day - represents about 34% of the overall population, or about 313 million people. This compares with around 196 million middle class individuals a decade ago.

The article also makes an interesting note about how the researchers documented the emergence of the middle class. Statistics were gathered from car dealerships, airlines, mobile phone companies, and even private schools in order to estimate the size of the middle class. At Nile, we have someoneare on the ground in Africa on a regular basis looking at companies, sizing up trends, and seeking opportunities for investment. Unlike developed markets, this on the ground research is crucial in finding and understanding compelling investments, and we believe our experience gives us a competitive edge. Second, the researchers highlighted a key point about a growing consumer class – it comes in tandem with more discretionary purchases. As with any consumer, when someone in Africa finds him or herself with more income, he or she will choose to buy more (and better) goods. However, Africa is a highly segmented market, with notable differences in tastes and preferences across the continent, and even within individual countries. Thus, we constantly seek to understand where the new members of the middle class will choose to spend their funds – and invest in those opportunities.

In addition, the article notes that “the data paint a picture of a continent on the move, thanks to more open markets and a greater degree of political stability. New jobs—instrumental in China's and India's growth and urbanization—are spurring migration to cities and Africa's wealthier countries.” We have seen this as well, and would point out the recent McKinsey report which noted that 40% of Africa’s population lived in cities in 2010. In fact, in 2010 there were 52 cities in Africa with over one million residents – more than in North America and India, and the same as in Europe. These cities serve as natural entry points for firms seeking to expand their market share in the continent.
Share of Population | Frontier Market InvestingThese observations are similar to what we have written about the African consumer market (see our article here) which we see as an incredible opportunity for long term investors.

Of course, it is also important to point out that although there are significant opportunities across Africa, they range widely across the continent. As shown in the graphic above, there are countries where over 2/3 of the population is middle class, and countries where less than 1/3 is. Thus it is important to view each of Africa’s nations as a distinct investment opportunity, some of which are more compelling than others. Being aware of the differences – and able to selectively invest across the continent – presents investors with a compelling opportunity.

For more information about investing in Africa, please contact Nile Capital Management at (646)367-2820 or

We know Africa - from Cairo to Capetown.