Africa: a walk on the wild side for investors
For all the economic and political risk, signs of growth flicker in some parts of the continent
Sunday 25 February 2007
From vast expanses of desert, to sub-Saharan savannah teeming with wildlife, to market traders in Marrakesh, perceptions of Africa are shaped by any number of images. Sadly, though, the most startling and enduring pictures are those of war or famine.
A litany of factors including corrupt governments, economic collapse, natural disasters and a hangover from the colonial era mean Africa is firmly entrenched as the world's poorest continent. Figures published by the United Nations in 2003 showed that the 25 most under-developed countries were all African.
The fortunes of the continent have been thrown into sharp relief by Asia's drive out of the financial wilderness. The "tiger" economies of Korea and Taiwan led the way in the 1970s and have been joined in recent years by the rapidly growing powerhouses of China and India.
As a disparate band of countries - from the democratic and increasingly prosperous South Africa to the repressive regime and economic basketcase of Zimbabwe - struggle to stand on their own feet, Africa has become, for too many Britons, a home simply for charitable donations, highlighted by campaigns such as Live8.
International development might seem far removed from people wondering what to do with their annual £7,000 individual savings account (ISA) allowance. Few of us would think of Africa as a good place to invest.
But for those prepared to take a risk with a small part of their portfolio, there are signs the continent's fortunes are starting to change. The latest figures from the World Bank show 16 African countries have managed to sustain annual growth rates of more than 4.5 per cent since the mid-1990s.
The World Bank also reports that inflation and government deficits on the continent are both falling. Together, these translate into the potential for a stable home for your cash.
Jonathan Asante, a specialist in under-developed markets at fund manager First State, argues that there is now a consensus in Africa about how to build a successful economy based on free markets and the rule of law. Once this structure is implemented properly, he stresses, African nations could generate tremendous and rapid growth.
Even if a country is run half as well as it could be, the potential growth in asset prices, the economy and people's wealth is huge, he explains. Africa is the "last emerging market".
Other signs suggest the continent is broadening its appeal to overseas investors, with an emerging African middle class holding a lot of promise for consumer industries. In some countries, the anticipated growth in mobile phones is huge.
Mr Asante says that Ghana, run by a democratic and reformist government, has a great deal of potential, as does oil-rich Nigeria.
"The beneficiaries of an expanding middle class could be companies such as the Standard Bank of South Africa or shopping chains such as ShopRite and Woolworths," he adds.
Despite these promising indicators, there are plenty of caveats for investors. One is that a lot of Africa's wealth stems from its great stocks of minerals and precious metals, as well as oil and coal.
Over the past two years, prices for commodities including copper, gas, gold and oil have been at vertiginous levels and many City analysts worry that they could plummet. That, however, hasn't stopped Jamie Allsopp, who runs the New Star Hidden Value fund. Although this is focused on the UK, he has 7 per cent of his portfolio invested in African mining firms - attracted by mineral deposits including copper in the Congo and gold in South Africa and Botswana.
"Many of the companies, such as Ridge Mining and Central African Mining, list their shares in the UK," he says. "I want to be exposed to African growth as it's one of the most interesting parts of the market at the moment."
Other big African-based firms with a London listing include drinks giant SABMiller and fund manager Old Mutual.
However, many countries on the continent have a history of political unrest, and economic instability can increase the chances of further coups and civil wars.
On top of this, the small size of the financial markets means that investors, whether individuals or institutions, can find it hard to sell holdings if markets turn downwards in a crisis.
So how to invest? First, it's not easy to find a fund. Ones dedicated to backing African companies or stock market indices - and most African states with an index list only a handful of businesses - are rare. A small number now offer exposure, though this is limited.
The Investec Pan-Africa fund is one option but it's based in Guernsey, which can make it more expensive, and administratively difficult, to invest in.
An alternative is a global "emerging markets" fund. Among those tipped by financial advisers are Lazard Emerging Markets and Aberdeen Global Emerging Markets.
For a lower-risk option, try a global bond fund such as Newton Global Dynamic, which invests in debt issued by South African companies and the government.
Financial advisers usually recommend that no more than 5 per cent of any portfolio is invested in such a high-risk area.
Tim Sharp writes for 'New Model Adviser' magazine, published by Citywire
Compare with the Independent: See how much you could save by switching credit cards. Compare now
Solar on Schools project offers green investors 'tangible, ethical assets'
easyJet founder Sir Stelios Haji-Ioannou aims to make buying a home easier
Pensions: £600,000 needed for decent retirement pot
Life expectancy calculator will allow people to plan ahead but needs to be handled carefully
How to start your own internet business
- 1 Easter egg hunt horror as mother finds dead body under deck of house
- 2 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 3 Unbeliebable: The White House offer 'no comment' to anti-Justin Bieber petition
- 4 Loch Ness Monster found on Apple Maps?
- 5 How We Met: Alison Moyet & Emma Kennedy: 'I knew we'd be friends because she was happy to make a prat of herself'
The food poverty scandal that shames Britain: Nearly 1m people rely on handouts to eat – and benefit reforms may be to blame
Scottish independence: It is the English who should be on their knees, begging the Scots to vote ‘No’
Nigel Farage fatigue? Half of voters ‘immune’ to Ukip’s appeal
'Sinful': Video of British Muslims dancing to Pharrell Williams's hit Happy comes under attack
Nigel Farage: I’m taking on the status quo, and the Establishment’s fighting back
Refugee facing deportation from Sweden saved by fellow passengers refusing to let plane leave
iJobs Money & Business
Negotiable: Harrington Starr: Database Team Lead ( Leadership, Sybase, Compute...
£40000 - £50000 per annum + Bonus+Benefits+Package: Harrington Starr: C#.NET D...
£25000 - £35000 per annum + Bonus+Benefits+Package: Harrington Starr: VB.NET S...
£45000 - £55000 per annum + Bonus and Benefits: Harrington Starr: Trade Suppor...
Day In a Page
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds