Africa rising
Sub-Saharan Africa – excluding South Africa – is among the fastest growing regions in the world. The region’s 5.8% 2012 GDP growth forecast is among the reasons a staggering 66% of respondents to a recent African Development Corporation survey choose Afri
Private capital flows into the region have grown from around $80 billion in 2008 to more than $100 billion last year. And according to Ernst & Young’s 2011 Africa Attractiveness Survey (based on research conducted by Oxford Economics), new foreign direct investment into Africa will top $150 billion by 2015. Why is Africa attracting so much capital? BoE mentioned three factors that have contributed to the positive shift in investor perceptions of the continent. These include the emergence of investment opportunities beyond the traditional natural resources space, the region’s strong emerging middle class and resultant surge in consumerism, and the financial services saturation afforded by ever-expanding mobile banking solutions.
Sectors to invest in
How can fund managers and retail investors leverage the ongoing African renaissance to maximise their investment returns? The first step is to determine which sectors of the economy are most likely to outperform. This riddle is answered by considering the sub trends identified by BoE, including growing populations and urbanisation, higher GDP and massive infrastructure investment. It makes sense, therefore, to invest in companies that are active in the consumer, infrastructure and financial services sectors. A quick look at sector performances relative to the JSE All Share index confirms investor preference for these sectors.
Over the past decade offshore investors have channelled billions of dollars to South Africa’s bond and equity markets, lured by attractive yields and the country’s status as the largest economy on the continent. They also realised that South Africa was a fantastic starting point for investment into the rest of Africa. The hunger for JSE-listed companies with African exposure is plain for all to see. In the retail sector, for example, foreign investors now own more than 60% of Clicks, Massmart (which includes Makro, Game and Dion stores) and Truworths. They have also snapped up 30% (or more) of Foschini, Lewis, Mr Price, Pick ‘n Pay, Steinhoff, Shoprite, Spar and Woolworths. “There has been a significant pick up in foreign investors buying into the retail story,” said Rogan. “Back in 2007 foreign shareholders held 35% of the retail sector; today their interest has grown to more than 45%.”
And they have appetite for more. Although many analysts dismiss Shoprite Checkers as expensive, international investors cannot get enough of the share. When the company went to market recently to raise R8 billion (R4.5 billion through debt and the balance through equities) the offer was six times oversubscribed. Why? Sub-Saharan Africa will have 128 million households with more than $5000 in annual income by 2020… And Shoprite has plans (and the capital required to implement them) to open 10 supermarkets and 20 stores in Africa over the next five to 10 years.
Any store will do…
The retail sector is littered with investment opportunities. Foschini’s chief executive believes his company will be a household brand in Africa 15 years from today. “Wall-mart invested in Massmart for its African potential,” added Rogan. “If local retailers fail to take advantage of the opportunities you can be sure other offshore retailers will do so.”
The same argument holds for the banking sector. Mobile banking is transforming the African financial services landscape, with more than 70 million Africans accessing their bank accounts by mobile phone! The swift and continuing uptake of cell phone banking informs the African Development Corporation estimate of 815 million deposit accounts across Africa by 2020. It is no wonder that foreign investors have grown their shareholding in domestic banks from 17% in 2007 to almost 50% today. In recent years we have witnessed massive offshore interest in the segment, including the 2007 purchase of a 20% stake in Standard Bank by the Industrial and Commercial Bank of China, and the 54% Absa stake acquired by UK-listed Barclays.
South African banks have finally joined the stampede to scoop up African financial services assets. Nedbank has an option to acquire 20% of pan-African EcoBank, a company in which the PIC recently invested $250 million. Standard Bank is disinvesting from Russia, Argentina and Turkey and brining the capital back for redeployment into Africa. And FirstRand is attempting to enter the Nigerian market.
Slumbering giants
BoE believes that companies with a presence in multiple African economies are best positioned to outperform as the African consumerism story plays out. Naspers, South African Breweries (SAB) and Tiger Brands are just three of the locally listed shares with exposure to 25-plus economies. “SAB is a standout example – there are few multinational companies that are better at operating in emerging markets,” observed Rogan. Investors who prefer infrastructure opportunities might consider logistics companies such as Bell and Imperial...
Africa presents a unique opportunity for locally listed companies. Rogan does not expect our equity market to re-rate based on the African renaissance. Instead the myriad growth opportunities on the African continent will underpin corporate earnings of locally listed companies with African exposure.
Editor’s thoughts: BoE Private Clients has flagged infrastructure as one of the biggest threats to the African renaissance. They observe that 40 years ago sub-Saharan Africa had better infrastructure than China and India… Nowadays the entire region produces only as much power as Spain. Are South African companies lagging their Chinese and Indian counterparts in availing of growth opportunities in the rest of Africa? Please add your comment below, or send it to [email protected]
