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View the article online at http://citywire.co.uk/wealth-manager/article/a647049

Investors turn to Africa as the final frontier

by James Smith on Dec 28, 2012 at 07:00

Nigerian Breweries, a subsidiary of Heineken, is another favoured stock in the consumer area.

Virtuous circle

Emerging market veteran Mark Mobius also highlights growing opportunities in Africa, recently launching a dedicated fund for the region. The executive chairman of Templeton Emerging Markets Group says that the population of Africa has seen its prospects and productivity transformed by education, mobility and access to capital resources.

‘The effects of this virtuous circle are evident,’ he adds. ‘Between 2001 and 2010, six of the world’s fastest-growing economies were in Africa and over the next five years, the International Monetary Fund is forecasting GDP growth in excess of 5% for the sub-Saharan region, with Nigeria, Ghana and Kenya projected to grow even faster.’

As with most Africa advocates, Mobius cites the wide discrepancy in growth between frontier and developed markets, 2% GDP growth for America in 2011 for example compared to 6.9% for Nigeria. ‘Growth in an economy should lead to growth in corporate earnings,’ he adds.

‘Foreign direct investment from emerging markets has made a big impact in Africa, bringing a rise in income and middle class expansion in many countries and resulting in increasing demand for consumer products.

‘For these reasons, we like the consumer and commodity story on the continent as well as the banking industry, not only because of the rise of microfinance, but also because of the growth of banks and their move into consumer banking.’

Despite many positives, Mobius says investing in Africa is not without its challenges, with political considerations crucial to investment decisions. ‘In a number of countries, political instability represents a significant threat. Corruption is a problem found in nearly all markets but it can be magnified in those where power and resources are concentrated in the hands of a few,’ he adds.

‘The good news, from an investor’s perspective, is that today corruption is openly discussed, which is a good first step toward achieving a more fair and equitable system.’

Outside South Africa, equity markets are also relatively small and illiquid and many key assets remain in state and private hands. For Mobius, South Africa stands out for its large and liquid equity market and he also highlights its benefits in accessing northern neighbours.

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