Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
For a continent with such an embarrassment of riches when it comes to natural resources, Africa should feature more prominently than it does within the vast asset pools of international fund companies.
That it does not is because of liquidity — or the lack of it — rather than too few investment opportunities, say fund managers. However, lacklustre stock markets have also been a serious stumbling block.
“It has been a tough decade for African markets,” says Emily Fletcher, co-manager of the Frontiers Investment Trust at BlackRock, the world’s biggest asset manager. “Over the past 10 years to the end of April, the Kenyan market has fallen 12 per cent, the Nigerian market 89 per cent, and the Egyptian market 46 per cent. The larger South African index, although positive, has fared little better, returning just 7 per cent.”
While gross domestic product has continued to grow in most African countries, notes Fletcher, stock markets have “resolutely disappointed, highlighting yet again the minimal correlation between GDP and stock prices in emerging markets”.
Nigeria, Africa’s most populous country, has been particularly problematic, dogged by a severe lack of foreign exchange that has hamstrung international investors. As oil prices tumbled at the start of the Covid-19 pandemic, Nigeria’s central bank introduced foreign exchange controls, in a move to alleviate a dollar shortage. This made it very hard for foreign investors in Nigerian stocks to get their money out of the country when they sold up.
David Gibson-Moore, president of consultancy Gulf Analytica and a senior adviser to the multi-billion-dollar Ashanti Foundation in Ghana, says bureaucratic inefficiencies, regulatory bottlenecks, and “corruption and governance issues” have hindered both investment and economic development in Nigeria.
President Bola Tinubu gave investors hope when he took office last summer. He promised them he had “listened” and would ensure they would be able to repatriate their “hard-earned dividends and profits home” in his inauguration speech.
Chris Tennant, a fund manager at Fidelity International, one of the world’s largest investment companies, says this “ambitious reform agenda is showing early signs of success”, and the outlook for the country is improving. “We try to avoid investing in countries with capital controls and unsustainable foreign exchange regimes,” he explains. “Nigeria fell into this bucket for a long time.”
Gregory Longe, portfolio manager of the Africa Frontiers Strategy at Cape Town-based Coronation Fund Managers, agrees, adding that “both Nigeria and Egypt have emerged as more appealing” after their respective central banks this year allowed their currencies to weaken significantly against the US dollar.
Longe adds: “More importantly, access to US dollars in both markets has improved. While still early days, this is a dramatic improvement for two markets plagued by dollar shortages since 2020.”
Mark Mobius, chair of the Mobius emerging opportunities fund, has become far more optimistic about Africa’s investment prospects, generally. He says the most attractive countries right now are “South Africa, Egypt, Morocco, Nigeria and Kenya . . . Although the political situation and economic conditions in these countries are not necessarily ideal, that does not mean individual companies can’t do well.”
The veteran investor believes the most interesting sectors are broadcasting, retail, mining, and banks.
Companies with the “highest earnings growth and low debt” are the most compelling, he says, naming Egyptian e-payments company Fawry, Moroccan property company Douja Promotion Groupe Addoha, and Kenya’s mobile network operator Safaricom as standout buys. In South Africa, he likes internet and media conglomerate Naspers, Standard Bank, and miner Harmony Gold.
Tennant, also sees value in South Africa. “It is home to well-established capital markets and institutions and the equity market looks cheap — and so there are plenty of investment opportunities.”
He, too, gives Naspers, the biggest shareholder in Chinese internet giant Tencent, and Standard Bank a special mention. “Naspers trades at a large discount to the value of its portfolio and, in recent years, has significantly improved capital allocation. Standard Bank, meanwhile, is attractively valued with a very strong diversified portfolio across sub-Saharan Africa.”
Mobius warns that investors must work harder in Africa to uncover investment gems. But, scratch beneath the surface, he says, “and there are opportunities everywhere.”
