Investors take note of Africa-specific funds
19 August 2013
The pessimists who called Africa "hopeless" could not have been more wrong. The biggest fund on the continent said last week while it still needed to think laterally to find opportunities due to the fairly poor listed environment, a "higher number of listings" is on the cards.
International interest in Investec Asset Management's Pan Africa Fund, with its $212m under management, reflects a broader acceptance of the case for Africa.
Investors have not failed to notice a surge in growth to 28% in the last year. A year ago, Africa-specific funds were struggling to eke out single-digit growth.
The African Development Bank (AfDB), in its latest forecast, sees South Africa's gross domestic product (GDP) growing 2.8%, much more positive than current expectations of about 2%. However, the continent's average GDP growth is likely to amount to 4.8% this year and 5.3% next year, the report forecasts. Joseph Rohm, co-portfolio manager of the Investec Africa fund, says the excitement about growth in Africa "is tangible in a lot of the countries you visit".
He says a major theme could be higher numbers of listings three to five years down the line. "I'm aware of three in Nigeria over the next 12 months, with each over $1bn in market capitalisation. We haven't heard that for a number of years" says Mr Rohm.
"Clients no longer need to discuss the case for Africa - they are more convinced of the growth" he says. And the focus of big funds is not resources; the fastest growth area is services. "Increasingly, service economies and service sectors are growing fastest" says Mr Rohm.
The biggest disappointment, however, is liquidity, which Investec says is "way behind" where it needs to be.
"But we have seen improvements this year in terms of daily value traded" says Mr Rohm.
South Africa joins nine countries including Sudan, Egypt and Swaziland as the 10 slowest-growing countries in the AfDB report. Sierra Leone, Angola, Zambia and Mozambique are among the fastest-growing.
Investec head of frontier and emerging markets equities Chris Derksen says institutions from South Africa and other regions represent a significant part of the pan-African investment strategies.
"These investors generally have a positive long-term view on the broader African opportunity. South African investors also benefit from an additional international allocation allowance to the African continent" he said on Friday.
Stanlib's Africa Equity Proposition Fund may be small compared with Investec (although the company has rolled out six franchise offices and has numerous African country investment offerings), but investors would have noted it has made returns of more than 30% so far this year and 10% over three years - about 10 percentage points above benchmark levels. It favours Nigeria, Egypt and Kenya.
Stanlib asset management MD Ben Kodisang says his target is to add offices in Nigeria and Ghana in the next year, bringing the offices outside South Africa to eight.
Stanlib has just launched an Africa development fund of $200m to help grow shopping centres to service what it says is "huge retail demand" and to help formalise informal trading.
Mr Kodisang says progress on this is at an "advanced stage" and should start going to ground next year, depending on how quickly approvals are received.
Projects are expected in East or West Africa. "Momentum for Africa has started. It is not crowded - there is so much opportunity" he says.
Stanlib head of research Henry Munzara says equity markets in Africa will continue deepening. "But you will still have centres where capital is concentrated, like South Africa, Nigeria and east Africa, but we will see markets deepening over time."
"Private equity will lead and listed markets will come later on" says Mr Munzara.
Original article written by Evan Pickworth