Africa presents one thing of a conundrum for the world’s largest asset managers. What ought to be a continent overflowing with funding alternatives is by and huge not more than a aspect be aware inside the buying and selling actions of many worldwide fund corporations.
Regardless of being house to a number of the quickest rising economies, in addition to an abundance of pure assets and a burgeoning center class, it continues to be unloved by the vast majority of funding managers.
The variety of funds that spend money on the continent stays small, with knowledge from funding analysis agency Refinitiv exhibiting the one largest particular person Europe-focused fund holds more cash than all the Africa funds put collectively.
Liquidity, or the shortage of it, is the sticking level. “For lots of nations in Africa, getting your a reimbursement out is the issue,” explains Chris Tennant, a fund supervisor at Constancy Worldwide, one of many world’s largest funding corporations.
Illiquidity makes the state of affairs “very troublesome”, affirms Mark Mobius, the veteran investor. However scratch beneath the floor and the identical fund managers say the continent can present profitable and steady returns — so long as buyers are ready to do their homework.
Because the FT-Statista 2023 ranking of Africa’s fastest-growing companies reveals, the continent has a lot to supply, in sectors starting from fintech and renewable power to healthcare, commodities and agriculture. Nevertheless, most of the names within the 100-company listing are successfully off limits to mutual funds and higher suited to non-public fairness buyers who, as Mobius says, could make a “5 or 10-year dedication with out the stress of needing to redeem”.
What international locations, sectors and firms, then, do fund managers like? For Tennant, a lot promise lies in Zambia, commodities and the Canadian copper miner First Quantum Minerals. “I significantly like Zambia,” he says, noting that, as a number of commodity-producing nations implement windfall taxes and tighten tax regimes, Zambia is doing the other. President Hakainde Hichilema, since assuming workplace in 2021, “has improved the monetary framework for mining corporations” and is “pro-investment”, Tennant says. Coupled with the worldwide transfer to impress vehicles, and therefore the expansion in copper demand, this “makes a compelling case for Zambian mines, with First Quantum the standout title”.
Tennant additionally likes Namibia, which has a “very shiny future” after an enormous oil discovery within the Orange Basin — the realm’s third discovery in simply over a yr. “The potential for buyers right here is big,” he says.
Gregory Longe, portfolio supervisor of the Africa Frontiers Technique at Cape City-based Coronation Fund Managers, agrees. He has a big holding in Africa Oil, a Canadian listed firm that stands to learn from its hyperlinks to the latest Namibian discoveries. Africa Oil additionally has stakes in “top quality” oil producing fields operated by TotalEnergies and Chevron in Nigeria that may “generate more money over the subsequent 4 years” than the corporate’s total market capitalisation.
“However what we’re actually enthusiastic about is that Africa Oil additionally owns a stake within the Venus oil discovery in Namibia,” he says, referring to the second of the three Orange Basin discoveries. “This area is at present being explored by TotalEnergies and is estimated to be a 3 to 10bn barrel area. It’s TotalEnergies’ primary exploration precedence for this yr.”
Longe can be eager on Ugandan electrical energy distributor Umeme, regardless of the corporate being set to lose a key authorities contract in 2025. Reports suggest Uganda will type a state-owned electrical energy distributor to take over when Umeme’s concession expires subsequent yr, in an try to scale back energy tariffs by chopping out the middleman.
However Longe believes Umeme is undervalued. “The enterprise has simply generated $40mn in web revenue, up 4 per cent yr on yr, and declared a $30mn dividend within the earlier monetary yr. “The corporate is predicted to continue to grow earnings over the subsequent two years, be debt free by year-end, and obtain an estimated $250mn payout” when the federal government contract ends.
He provides that, up till December final yr, Umeme had a market capitalisation of lower than $100mn and that “for sure” he was “very joyful” to extend his fund’s publicity to the corporate.
“Since then, the share [price] has doubled, but nonetheless seems to be very low-cost buying and selling on a 4.3x historic value/earnings ratio and 18 per cent historic dividend yield.”
Different corporations flagged by asset managers as compelling funding alternatives embrace Kenyan telecoms group Safaricom, South African retailer ShopRite, and metals producer Jubilee Metals, which operates in Zambia.
Total, although, the sense from the worldwide fund group is that the continent remains to be extra stuffed with promise than the rest. “Africa stays hope everlasting for international buyers,” says Gary Dugan, Dalma Capital’s chief funding officer. “A continent wealthy in assets, commodities and other people [that] nonetheless struggles to stay as much as the aspirations of the individuals and worldwide buyers.”
However he provides that “there may be extra persistence to efforts by the worldwide group to assist Africa realise its undoubted potential . . . Most of the rising markets of the world have emerged, most notably China, and buyers are looking for new ones. Perhaps Africa can ultimately ship.”