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

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

Arts & Entertainment
Shaun Evans as Endeavour interviews a prisoner as he tries to get to the bottom of a police cover up
tvReview: Second series comes to close with startling tale of police corruption and child abuse
Arts & Entertainment
A stranger calls: Martin Freeman in ‘Fargo’
Review: New 10-part series brims with characters and stories

Arts & Entertainment
Schwarzenegger winning Mr. Universe 1969
arts + entsCan you guess the celebrity from these British Pathe News clips?
Sport
Raheem Sterling and Luis Suarez celebrate during Liverpool's game with Norwich
football Another hurdle is out of the way for Brendan Rodgers' side
VIDEO
Arts & Entertainment
The star of the sitcom ‘Miranda’ is hugely popular with mainstream audiences
TVMiranda Hart lined up for ‘Generation Game’ revival
News
Portrait of Queen Elizabeth-II by David Bailey which has been released to mark her 88th birthday
peoplePortrait released to mark monarch's 88th birthday
Life & Style
The writer, Gerda Saunders, with her mother, who also suffered with dementia before her death
healthGerda Saunders on the most formidable effect of her dementia
Sport
Manchester United manager David Moyes looks on during his side's defeat to Everton
footballBaines and Mirallas score against United as Everton keep alive hopes of a top-four finish
Sport
Tour de France 2014Sir Rodney Walker on organising the UK stages of this year’s race
Arts & Entertainment
Jessica Brown Findlay as Mary Yellan in ‘Jamaica Inn’
TVJessica Brown Findlay on playing the spirited heroine of Jamaica Inn
News
YouTube clocks up more than a billion users a month
mediaEuropean rival Dailymotion certainly thinks so
Arts & Entertainment
The original design with Charles' face clearly visible, which is on display around the capital
arts + ents The ad shows Prince Charles attired for his coronation in a crown and fur mantle with his mouth covered by a criss-cross of white duct tape
Arts & Entertainment
‘Self-Portrait Worshipping Christ’ (c943-57) by St Dunstan
books How British artists perfected the art of the self-portrait
Sport
Luis Suarez celebrates after scoring in Liverpool's 3-2 win over Norwich
Football Vine shows Suarez writhing in pain before launching counter attack
News
People White House officials refuse to make comment on 275,000 signatures that want Justin Bieber's US visa revoked
News
Sir Cliff Richard is to release his hundredth album at age 72
PEOPLE
Sport
Lukas Podolski celebrates one of his two goals in Arsenal's win over Hull
football
Arts & Entertainment
Quentin Tarantino, director
film
News
The speeding train nearly hit this US politican during a lecture on rail safety
news As the saying goes, you have to practice what you preach
Sport
Mercedes Formula One driver Lewis Hamilton of Britain (front) drives ahead of Red Bull Formula One driver Daniel Ricciardo of Australia during the Chinese F1 Grand Prix at the Shanghai International circuit
sport
Arts & Entertainment
Billie Jean King, who won the women’s Wimbledon title in 1967, when the first colour pictures were broadcast
tv
News
Snow has no plans to step back or reduce his workload
mediaIt's 25 years since Jon Snow first presented Channel 4 News, and his drive shows no sign of diminishing
Life & Style
food + drinkWhat’s not to like?
Finacial products from our partners
Property search
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Database Team Lead ( Leadership, Sybase, Computer Science)

    Negotiable: Harrington Starr: Database Team Lead ( Leadership, Sybase, Compute...

    C#.NET Delphi SQL Developer (C#,DELPHI,SQL)

    £40000 - £50000 per annum + Bonus+Benefits+Package: Harrington Starr: C#.NET D...

    VB.NET SQL Junior-Mid Level Developer (VB.NET,SQL,Excellent com

    £25000 - £35000 per annum + Bonus+Benefits+Package: Harrington Starr: VB.NET S...

    Trade Support, Application Support, Operations Analyst, CRM MS

    £45000 - £55000 per annum + Bonus and Benefits: Harrington Starr: Trade Suppor...

    Day In a Page

    How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

    How I brokered a peace deal with Robert Mugabe

    Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
    Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

    British Muslims's Happy video attacked as 'sinful'

    The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
    Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

    Michael Williams: Do as I do, not as I pray

    Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
    A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

    A History of the First World War in 100 moments

    A visit to the Front Line by the Prime Minister's wife
    Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

    Jenny Collier: 'Sexism on stand-up circuit should be extinct'

    The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
    Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

    Cannes Film Festival

    Ken Loach and Mike Leigh to fight it out for the Palme d'Or
    The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

    The concept album makes surprise top ten return

    Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
    Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

    Lichen is surprise new ingredient on fine-dining menus

    Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
    10 best baking books

    10 best baking books

    Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
    Jury still out on Manchester City boss Manuel Pellegrini

    Jury still out on Pellegrini

    Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
    Ben Stokes: 'Punching lockers isn't way forward'

    Ben Stokes: 'Punching lockers isn't way forward'

    The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
    Mark Johnston: First £1 million jackpot spurs him on

    Mark Johnston: First £1 million jackpot spurs him on

    The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
    Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

    Ricky Gervais: 'People are waiting for me to fail'

    As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
    Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

    Mad Men returns for a final fling

    The suits are still sharp, but Don Draper has lost his edge
    Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

    Google finds a lift into space will never get off the ground

    Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit