Investing in Africa

For the past two decades, the attention of investors around the world has been riveted on the emerging markets of Asia, which includes two of the four high-growth “BRICs” – India and China. Several emerging markets in Europe and South America, including the two other BRICs (Brazil and Russia), have also seen increased capital flows and higher allocations in global investment portfolios. As these opportunities inevitably pull back, fade, or become less dramatic, some other high-growth emerging and frontier markets should become attractive and worthy of consideration to be added to a sophisticated investor’s asset allocation strategy.  Several are located in Africa, the world’s second largest continent by population and land mass, behind only Asia in both measures. With a population of more than one billion spread among 53 nations and almost 12 million square miles, Africa is becoming too big for investors to ignore. However, its financial markets and expanding public companies remain relatively unknown and under invested by most foreigners. 


Quick points to consider:

● A ground floor opportunity with potential for high returns - Already we have seen the first wave of strong returns from Africa.  The continent’s economic growth is just forming what we believe is a powerful upward curve that will continue for decades and may produce results as rewarding as the BRICs over time.

Growth of $1,000 Invested in Leading Benchmarks Including African Markets
 
● Attractive diversification and management of risk - Because Africa's markets have a low internal correlation, as well as a low correlation with other global markets, the risk profile for an Africa investment is compelling.  In fact, a composite of Africa's largest markets has not only substantially outperformed the MSCI Emerging Markets index and the S&P 500 in the past decade, but it has done so with a lower standard deviation of returns.

Africa Composite data is composed of equal-weighted monthly returns from South Africa, Nigeria, Kenya, Mauritius, Ghana, Egypt, Morocco, and Botswana.


We believe that Africa is an excellent opportunity for a long term investor because:

Valuations are attractive. Compared to developed or other Emerging markets, Africa markets and stocks trade at lower multiples, are less liquid, have lower coverage by Wall Street analysts and are not followed by large money managers. In addition, companies and households have low levels of debts, countries generally have better fiscal balances and the economies have low leverage.


Africa is rich in natural resources. The continent contains 13% of the global reserves for oil, 50% of proven gold reserves, 50% of proven iron ore reserves, 60% of cobalt, and 90% of the platinum group reserves, to mention a few. Africa will continue to supply the world with basic materials as demanded by countries looking to industrialize.


Africa’s growth is driven by its demographics. Africa’s population is estimated at 1 billion people, and is expected to double by 2040. The continent’s young population, with an average age of 21 compared to 45 for developed countries, will fuel more demand for goods and services, relative to developed countries that spend more on social security, health care, and entitlements.


High risk-adjusted returns. There is a large information deficit about the performance and opportunity in Africa markets. Although there has been robust evidence of high returns in Africa, there has thus far been relatively little investment, even after adjusting for risk premiums.

Steadily Increasing Capital Flows.  Fund flows to Africa now exceed those of three of the four BRIC countries


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

We know Africa - from Cairo to Capetown.