The African continent has a reputation for being particularly difficult for investors. Your investments can be very successful if you follow the promising ways to invest in Africa.
For many Western investors, Africa is still the CCD continent, the continent of crises, conflicts and disasters. However, the African continent has never been so peaceful in the past 200 years as it is today. There are five promising ways to invest in Africa. We’ll tell you which.
1. Mutual funds
You will find quite a broad range of actively managed mutual funds investing in African equities. Among the European asset managers, there is the Bellevue Fonds (Lux) BB African Opportunities or the DWS Invest Africa, managed by fund manager Sebastian Kahlfeld. You can also consider the Threadneedle (Lux) Stanlib Africa Equity fund. Some other international asset managers have launched quite a time ago mutual funds focussing on Africa. The JP Morgan Africa Equity Fund for instance has a good performance and is available in EUR, GBP and USD. MontLake Management Ltd has launched in Dublin, Ireland, the ML Drakens Africa Ex S.A. Ucits fund. And then there is the BPI GIF Africa fund or the Alquity Africa fund, run by the investment boutique Alquity in London.
If you consider mutual funds for investing in Africa, you should also have a look at the African asset managers. For example, the South African asset manager Coronation Fund Managers runs the Coronation UF Africa Frontiers Fund. The Sanlam African Frontier Markets, managed by Sanlam Investment Managers in Cape Town, was however in the past 12 months the bottom in the class.
The most developed and the most liquid equities market in Africa is the Johannesburg Stock Exchange (JSE). The South African market offers a broad range of sectors, market capitalizations and financial instruments. JSE is ranked among the 20 biggest stock exchanges in the world, thanks to a market capitalization of more than USD 1 trillion. There are some other stock exchanges, investors should consider: Lagos in Nigeria, Nairobi in Kenya, Cairo/Alexandria in Egypt and Casablanca in Morocco. Market access has become much easier since online brokers are widely active at all African stock exchanges. However, investors should be aware that many African stocks do not take their reporting obligations very seriously. And quite often, the market for some stocks is very tight.
Exchange Traded Funds (ETF) are not very popular among African investors. Or let’s put it this way: Africa is apparently not that popular with ETF issuers yet. However, investors will find some products. The EZA iShares MSCI South Africa ETF e.g., targets the South African market.
If you are looking for a pan-African ETF, you should consider the AFK – Van Eck Vectors Africa Index ETF . This instrument seeks to replicate the performance of the MVIS GDP Africa Index. This index includes local listings of companies that are incorporated in Africa and listing of non-African companies that do at least 50% of their business in Africa.
The GAF – SPDR S&P Emerging Middle East & Africa ETF does not offer a pure Africa play, as it also tracks the Middle East. This ETF targets the S&P Mid-East and Africa BMI Index.
We do not consider up to now ETFs as the best way to invest in Africa. On the one hand, African stock indices contain too many stocks whose market is very tight. On the other hand, African stock exchanges are often not representative of the opportunities that the market offers.
4. Private equity
Private equity in Africa resisted quite well to the covid-19 pandemic. The industry continued to raise USD 1.1 billon in the the first half of 2020. In the past few years, venture capital (VC) and private equity (PE) have established as important drivers for financing the African growth story.
If you consider investing in African companies, you will find private equity funds launched by the big international PE firms, but also more specific funds managed by European asset managers such as Améthis in Paris. The huge development finance institutions also support some funds investing in Africa. For instance, the German development bank KfW supports the fund AATIF investing in African agriculture and agri-business.
5. Direct investments
Africa has so many courageous, energetic and determined entrepreneurs that it would be a shame if you were to exclude participation from the outset. Especially, if the investment project is in a sector that you know already well, a direct investment will be very attractive. On our many trips across the African continent, we have met many impressive entrepreneurs.
Handling the legal and regulatory aspects of a direct investment is not so difficult, if you have an experienced partner at your side.
Five promising ways to invest in Africa
These are five promising ways to invest in Africa. Each type of investment may be adapted to your specific needs, And there are plenty of other opportunities to invest in Africa. If you consider to make the step and to invest in Africa, do not hesitate to contact us. We will be happy to give you a more detailed orientation, as Africa Partners is a global company having their roots in Europe as well as in Africa.