David Kuo: Africa need not be a dark continent for small shareholders
Africa has been described as the final frontier for investors.
That's because as a mass of land, it has been largely untouched from an investment perspective. But just because it has been untouched, it does not mean it is untouchable.
It is not really too difficult to make a case for Africa given that many of its economies have restructured since the early 1990s. The currencies have been more stable and inflation in the main is more acceptable. Additionally, the income of many African nationals has been rising steadily. This has led to significant investment in infrastructure and growth in the telecommunications industries.
However, there is still a lot of work to be done, which could be good news for private investors. Mobile phone penetration, for example, is still significantly below the saturation levels of the developed world.
Africa is also rich in natural resources such as oil and metals, which could prove very beneficial in the longer term. It has the world's biggest untapped resource of copper and it is also well endowed with other commodities. There is gold in South Africa, which also owns 80 per cent of the world's platinum. Nigeria, is awash with black gold, currently producing two million barrels of oil a day and Ghana has produced oil for the first time.
In terms of politics, there has been a shift away from dictatorships, but they haven't disappeared entirely, so investors need to be alert to the dangers. The uprisings in Libya, Tunisia and Syria had a detrimental effect on investors last year and the revolt in Egypt caused a 30 per cent drop in the value of shares. So investors should factor in a higher risk premium.
It is not easy to buy African shares directly. Apart from the Johannesburg Stock Exchange, the stock markets are small and illiquid. Nevertheless, it is possible to construct a portfolio with significant exposure to Africa through many UK companies. These include PZ Cussons, with 40 per cent exposure, and Lonmin at 20 per cent. Lonrho, which operates across 19 countries in the sub-Saharan area does over 90 per cent of its business in Africa. Tullow Oil, which is listed on both the London and Ghana stock exchanges, generates almost all of its profits there.
You can also buy African companies through their Global Depository Receipts. These are not shares as such, but certificates representing ownership of the underlying shares. Examples include Nigeria's Guaranty Trust Bank and Zenith Bank.
Investment is also possible through trusts such as the AIM-listed Africa Opportunity Fund and also the PME African Infrastructure Opportunities that is listed on the London Stock Exchange. There are also exchange traded funds such as Lyxor ETF South Africa that tracks the FTSE/JSE Top 40 index.
Investing in Africa probably makes sense if you already have a diversified portfolio. It is not for the faint-hearted, but as Jim Rogers once said: It is better to invest in a region that is bad but moving in the right direction than in developed countries that are past their peak.
David Kuo is director of financial advice website fool.co.uk
- 1 Terror at Woolwich barracks: Attacker tried to behead and disembowel British soldier
- 2 Mothers' diets may harm IQs in two-thirds of babies
- 3 Gay couple beaten in park urge MPs to moderate language on gay marriage
- 4 After woman sells virginity for $780,000, here are the results of our prostitution survey
- 5 Far-right French historian, 78-year-old Dominique Venner, commits suicide in Notre Dame in protest against gay marriage
BMF is the UK’s biggest and best loved outdoor fitness classes
Find out what The Independent's resident travel expert has to say about one of the most beautiful small cities in the world
Win anything from gadgets to five-star holidays on our competitions and offers page.
Day In a Page
A modern home of almost 1,000sq ft is close to Stoke Newington's high street. £499,950
A five-bedroom bungalow in Hoveton with riverside garden and mooring dock, £550,000
A refurbished one-bedroom flat with south-facing reception and high ceilings. £579,950
A four-bedroom Grade II-listed house in Nazeing with large gardens. £550,000
A modern four-bedroom house in a converted stable within walking distance to Peckham Rye. £695,000
Three-bedroom house in a quiet residential area within close distance to Battersea Park. £450,000
A three-bedroom cottage within commuting distance of London, Norwich and Cambridge. £250,000
A two-bedroom cottage with a sun room and gardens in South Chard. £350,000.
A three-bedroom semi-detached house with original features including fireplaces and wooden flooring. £399,950
A modern two-bedroom flat split across two floors and close to several public transport links. £595,000
A one-bedroom flat with an open-plan reception/kitchen and private balcony. £315,000.
A bright two-bedroom garden flat between South Acton and Chiswick Park. £499,950.
A listed four-bedroom farmhouse with stables, set in four acres. £500,000.
A three-storey family home with four bedrooms and an extended kitchen/diner. £995,000.
A three-bedroom Hamstone cottage in the rolling Somerset countryside. £430,000.
A luxury one-bedroom apartment on the first floor of a converted Victorian house. £425,000.