Last June 2010, AfricaSIF Intern Ike Nwagbara attended a conference on private equity in Africa. 

Here is his account of the event.

"The FIFA World Cup has Africa in the world’s spotlight. Recently, Bloomberg hosted the Africa Equity Focus Day, a seminar designed to educate investors about investing in Africa. A distinguished panel of four experts on the continent were assembled and they included:

  • Daniel Brody – CIO Silk Invest

  • Plamen Monovski – CIO Renaissance Capital

  • Farooq Oreagba – Head of Strategy & Business Development Directorate, Nigeria Stock Exchange

  • Michael Fidance – Head of Emerging Markets Cash Trading, HSBC

Brody and Monovski kicked off the seminar by providing the buy-side investment case for Africa. Their arguments for investing in Africa generally revolved around the following themes:

  •  Demographics: Africa’s population grows at a staggering rate. Currently, the population is set to double by 2040 to around 2 billion people. The population is relatively young, with about 45% under 15 years of age. Coupled with an expanding middle-class, (Africa now has a higher number of middle-class families than India) population growth provides opportunities for companies to increase revenues.

  •  Diverse Growth: The growth story for Africa is not merely due to natural resources. True, a significant amount of gold deposits, diamonds, cobalt, etc can be found on the continent, and Africa is even responsible for 100% of the world’s vuvuzelas! However, this resource richness only accounts for around a 25% share of GDP. Wholesale and retail, agriculture, transport and telecommunication all contribute significantly to GDP, and investors should bear this in mind.

  •  No Sovereign Debt Problems: Official debt to external creditors as a percentage of GDP declined by about 70% when compared to 2003 levels.

  •  Valuations: Valuations are low compared to global markets and global emerging markets. African companies regularly trade as low as 6 times earnings. The Africa risk premium seems to be in effect!

With excitement now truly in the air, Oreagba stepped in to discuss recent steps taken by The Nigerian Stock Exchange to attract investors.   In recent times, the NSE has increased its product offerings. There are now viable indices, a yield curve and two REITs. A few months ago, tax waivers were introduced for REIT dividends. By December 2010, two new ETF products are expected to be introduced. The NSE is also working with other stock exchanges in the West African region to increase cross-functional compatibilities. Soon, a trader in Ghana will be able to trade shares on the NSE.  The NSE has adapted its processes to meet the requirements of Bloomberg and other foreign partners, resulting in greater transparency.
 
Finally, Fidance took the stage to provide the sell-side’s perspective. Whilst he acknowledged that the investment case for Africa was interesting, he conceded that there were still some challenges facing investors. The main issues he observed were liquidity, transparency and excessive bureaucracy.  
 
In conclusion, the investment case for Africa is palpable. FDI flows are increasing and numerous infrastructure projects are on the way - the brain drain is now a brain gain. However, there are still enough risks out there to keep weary investors on their toes. Going forward, investors should take a long term view. We should incorporate ESG factors and ensure that Africa’s economic development is accomplished sustainably. This is where AfricaSIF comes in. With its network and knowledge base, AfricaSIF advocates sustainable investments in Africa that consider profits, people and the planet. Check out the Events page for a launch event near you!

- IN"