By Emerging Crowd
The emergence of the African continent as the new land of opportunity and the rise of the ‘African lions’ is a well-known narrative, but how do ordinary investors enter this market?
While both the developed world and other emerging markets are running out of breath; one third of Africa’s countries had GDP growth rates in excess of 6% in 2013[1]. Africa is increasingly being seen as the last frontier for investors; it exhibits a young growing population with an increasing disposable income. Today, 40% of Africans live in urban areas, and by 2030 this figure will be more than 50%. By then, the continent’s top 18 cities will have a combined spending power of $1.3 trillion. Foreign businesses and multinationals have been scrambling to get a piece of the action, while home-grown African businesses are forging ahead: continent-wide demand for capital is expected to increase by 8% a year between now and 2018[2].
So how do everyday investors get in on the action? Traditionally, investors wishing to gain exposure to Africa have had three choices; exchange traded fund (ETFs), actively managed funds or directly purchasing public company shares listed on stock exchanges.
The inherent problem with African-focused ETFs is the lack of choice and heavy bias towards particular sectors such as mining, or individual large listed stocks that dominate the ETFs. Actively managed funds, on the other hand, are most commonly associated with opaque fee structures and questionable performance track records. For a more hands-on approach, investors can choose between 29 stock exchanges in Africa to invest directly in listed companies. These are not for the faint-hearted though, as some are often characterised by illiquidity and a low free float. High returns can mask very small trading volumes: the Namibian Stock Exchange for instance posted healthy returns above 10% as of October this year, but the average weekly trade volume of $0.6m severely limits any active trading by ordinary investors. Besides, for foreign investors it is often tricky to set up the necessary local brokerage accounts. Investors could instead choose to purchase African equities listed on large international exchanges such as the FTSE, but these tend to be oversubscribed and trade at unattractive price/earning (PE) ratios.
In this context, investors’ best bet are to tap into private companies and their huge growth potential. Private equity opportunities in Africa have grown in popularity with the improving exit potentials available. In 2013, more than $3bn was invested in private equity, and exits reached an all time high this year of $1.3bn.
Private Equity Investments in Africa, by value and volume. Source: Ernst and Young, Preqin
While this sounds appealing, it is currently not an easily accessible option for the everyday investor. High minimum entry thresholds and associated fees mean that private equity is traditionally only accessible to ultra high net worth individuals and institutional investors. But, could this be about to change? Innovative new channels are springing up to connect private businesses in frontier and emerging markets with ordinary investors here in the UK. In the same way that new financial technologies are changing the alternative investment space in developed markets, the same disruptive technology is being applied to Africa – and in the process completely changing the landscape of what was previously a fairly closed club. Emerging Crowd is the first UK debt and equity platform to provide investment opportunities in Africa, as well as other frontier markets. The platform is independently audited by Resolution Compliance, a company regulated by the Financial Conduct Authority, and is built to give investors the freedom to choose both growth and income producing investments. The platform’s prime target is companies seeking capital of between £500k – £4m. Prior to any of the opportunities being admitted on to the platform, their investment analysts conduct in-depth financial analysis, due diligence and verify all of the information.
The overland Silk Road connected Africa with Asia and Europe, but it wasn’t until the worldwide adoption of the Internet that the potential for true globalisation has been possible. The flow of capital is becoming borderless and the traditional allocators of money are no longer able to hide their fees behind restrictive and asymmetric information. Self-empowered everyday investors, wherever they choose to reside, could finally be able to directly and transparently invest in the markets they see as having the greatest returns.
Emerging Crowd is the UK’s first global crowdfunding and investment platform focused on unlisted growth-stage companies in emerging and frontier markets. Founded by Will Tindall and Lucien Moolenaar, it will allow its members to invest in a highly vetted selection of companies operating in a select group of developing countries.
[1] AfDB report 201
[2] McKinsey 2014
Sources:
http://www.marketwatch.com/story/go-into-africa-etfs-with-money-and-time-2013-04-23
http://www.bloomberg.com/news/2014-08-04/ride-african-lion-economies-with-an-etf.html
http://www.africastrictlybusiness.com/lists/top-performing-african-stock-markets-2013
http://www.investinginafrica.net/african-stock-markets/african-stock-market-performance/
http://www.mckinsey.com/insights/africa/uncovering_hidden_investment_opportunities_in_africa
http://www.ft.com/cms/s/0/e6fcfff4-9df5-11e2-bea1-00144feabdc0.html#axzz3JX8vLhFm
Discussion
No comments yet.