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
Simon Read: Frozen in time - the expat British pensioners who deserve a better deal
Donald MacInnes: My wasted hours in the retail deserts of Dixons-Carphone
Pension firms must ask consumers more questions, says City Watchdog
How to start your own internet business
Bank-beating exchange rates on your international payments
- 1 King Salman: Just five days in, Saudi Arabia's new king has already overseen a beheading
- 2 The BBC has just done more to eradicate ‘terrorism’ than all our wars since 9/11
- 4 Presidential optical illusion offers clues to how brain processes faces
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...
Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...
£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...
Day In a Page
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
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