By Ashley Bendell
I first started regularly visiting Nigeria and Kenya in 2007
as hot money flowed into Sub-Saharan Africa equity and debt
instruments in spite of the fact that many investors found it
challenging to place the countries making up this region on a
map. The stock markets of these nations, like many others
scattered around the continent, had been – and to a
great extent still are – ignored by investors, largely
due to liquidity issues or market cap constraints. But over the
past five years we have seen a slew of mutual and hedge fund
launches focused on Africa.
The spotlight now shines on Africa, and many compare what is
happening there today to India in the early 1990's and China in
the early 1980's. The corporate and private equity world is
also waking up to the opportunity as the likes of McKinsey
& Co., General Electric, and The Carlyle Group build out
In what other countries could you hope to see such rapid
collective growth? Sub-Saharan Africa has grown consistently
above 5% for the past decade, and the future continues to look
promising with the IMF anticipating 5.9% growth –
double the global rate – in 2014. This growth goes
hand in hand with other positive trends, such as the
continent's demographic dividend (a very young population, and
falling dependency ratios), an expanding middle class, more
democratic elections, low government debt levels, as well as a
vast and increasing commodity pool.
The African stock markets are outperforming those in the
rest of the world. Many have returned more than 50% in the past
18 months, including those in Nigeria, Kenya, and Ghana (Egypt
often falls within Middle Eastern and North African mandates
and therefore is outside of this discussion). South Africa
returned 25%. All stand out relative to the MSCI EM index which
has remained flat.
Where could you expect to see a 75% return in 18 months?
That is exactly what is happening in Nigeria, Africa's largest
country (population: 160 million). Nigeria is the home of Aliko
Dangote's Pan African cement company, which is worth $20
Billion and is expected to list in London in the not too
distant future. The Nigerian stock exchange also contains
numerous multibillion-dollar companies within the banking and
consumer sectors, including such multinationals as Diageo,
Heineken, and Nestle. A number of banks also have GDR listings.
There are approximately fifteen Sub-Saharan stock-markets;
these are dominated by the market capitalization of South
Africa, Nigeria, Kenya, Ghana, Ivory Coast and Zimbabwe.
The Sub-Saharan stock markets are increasingly accessible.
While trading volumes remain lower than in many larger emerging
markets, they are dominated by foreign institutional investors
split relatively evenly among U.S., European, and African-based
mutual and hedge fund managers. Local investment banks and
brokers (as well as their international partners/ bulge bracket
banks) provide trading access and international corporate road
shows. African ETF’s have also been launched by
the likes of Van Eck.
Liquidity remains a key constraint for many managers, but
there are many ways to get involved. Many of the world's
largest companies now have material exposure to Africa,
including major consumer and beer brands such as PZ Cussons or
Heineken. In addition, South Africa's Johannesburg Stock
Exchange is the home of Massmart Holdings, a leading retailer,
which Wal-mart Stores purchased 51% of in 2011 to expand into
Many other more liquid South African companies offer growing
exposure to the continent within the construction, consumer,
financial services and telecommunications sectors. These
include MTN (mobile telecommunications), Tiger Brands (a leader
in food), and Shoprite (the continent's largest supermarket).
Investors can also invest via the stock markets of the UK,
U.S., Australia, Canada, and Portugal, many of which also offer
exposure to the new wave of oil and gas discoveries in Uganda,
Tanzania, Kenya and Ghana. And, of course, Africa has a wealth
of natural resources in Ghana (gold), South Africa (gold,
platinum), Mozambique (coal, gas), Ethiopia (fertilizer,
coffee), Zambia (copper), Ivory Coast (rubber, palm oil),
Guinea/ Sierra Leone (iron ore), and Botswana (diamonds).
Along with public equity development, Africa has also seen
growth in its fixed income and private equity markets. Recent
Eurobond issues in Nigeria, Rwanda, Zambia and Ghana have been
oversubscribed, and priced at 5% to 8%. Local debt instruments
have also provided yields of greater than 20% in the past two
to three years while many currencies have remained relatively
From a private equity perspective, Carlyle and KKR have
recently entered the space and other significant Pan African
and local private equity funds offer access to key sectors.
There is also increased interest from family offices and those
who in the past have been advocates of aid to Africa, but are
now realizing they can have a greater impact through
investment. Take Bob Geldof who created Live Aid and just
launched 8 mile, and President Obama, who recently launched his
African infrastructure plans under Power Africa following his
week-long trip to the continent.
For those ready to start investing, there is a great support
network for better understanding and executing upon these
opportunities, including an increasing number of investment
banks both foreign and local. In addition to their research,
the banks are hosting numerous corporate road shows to the U.S.
and Europe in addition to organizing their annual trips and
events on the continent. Corporate investor relations has
improved significantly at the largest companies often in
partnership with outside advisors. Africa is becoming more of
an open book with daily coverage by Reuters and Bloomberg as
well as other major media outlets, including CNBC Africa.
African presidents can be followed on Twitter. There are also a
variety of major African trade and investment forums in the
U.S., and leading American universities and business schools
are bringing together senior corporate and thought leaders from
the continent to our home soil.
Each country in Africa has its own specific risks and
rewards, which are slowly becoming more transparent, and it is
essential that political and economic reforms continue. These
early days provide a unique chance to uncover great
opportunities. If investors are willing to roll up their
sleeves and leverage a unique and developing local network,
there are many opportunities to earn satisfying returns and
build long-term relationships within this fledgling and
Ashley Bendell is a New York-based equity strategist
focused on Africa. He was formerly the head of Africa equity
distribution at Renaissance Capital and of frontier equities at
Exotix in the USA. He started his career at Credit Suisse in