Belfast Telegraph

Saturday 12 July 2014

Brave suggestions emerging from the investment storm

Economists forecast that 15 of the top growing countries this year will be in Africa

You will undoubtedly think that it would take a very brave investor or commentator to suggest that Africa could be rated as one of the fastest growing economies in the world.

Yet the Economist Intelligence Unit forecasts that out of the top twenty fastest growing countries in 2009, fifteen will come from Africa. To give you a couple of examples;

  • Malawi is forecast to grow 8.6% — compared with China at 7%
  • Tanzania at 7% — while India trails at 6%.

There are good reasons for this apparently contradictory view. The first factor is that the weaker financial linkages with the rest of the world, once seen as a stumbling block to Africa’s development, are now proving to be a major shelter from the rest of the developed world’s woes.

Thus there are less toxic assets on the balance sheets of African companies.

Another factor is that ready cash, rather than credit, has predominated in their trading world. This is why Africa’s banks have continued to lend although severe curtailing has become the norm in many other continents. This has shielded the African consumer and so is likely to contribute to growth.

Africa has another feature not found in our developed world. And this is the “informal” economy.

The informal economy may not be able to show facts and statistics, but it is an important factor in keeping many of the larger companies in the formal sector going.

It is also due to this informal sector that Africa boasts many entrepreneurs, whose central idea of good business practice is to earn the money, then reinvest in the business and only buy when there is cash to do so — the exact opposite of what we, in the developed economies, normally do.

So where exactly are the opportunities? Africa is a vast continent and so one of the best ways to cut to the chase is to look at the definition of what are referred to as ‘emerging markets.’

Broadly speaking, this refers to a developing country with stock markets that are beginning to demonstrate the features of more mature stock markets in more industrialised countries.

There are, of course, such countries all over the world from Eastern Europe to East Asia. In Africa only South Africa is seen as a true, emerging market.

However eight other African countries are heading towards this status and are the countries most likely to attract institutional investors, which in turn will accelerate growth. They are:

  • Botswana
  • Ghana
  • Kenya
  • Mozambique
  • Nigeria
  • Tanzania
  • Uganda
  • Zambia

Clearly there is still a long way to go and much to do, but there are several funds worth investigating into which you might want to consider spreading any investments — Duet Victoire Africa, Fidelity Emerging Europe Middle East and Africa Fund, Templeton Frontier Markets and Sanlam Investments are just a few of the current offerings.

As always, you will need to do your homework first, ensure that it fits with whatever you are seeking to achieve and, if you are unsure, take the appropriate, qualified, financial advice.

Nicholas Watts is an independent financial adviser with Positive Solutions Financial Services which is regulated by the Financial Services Authority. For more information or to contact him, visit the website: www.realwealthmanagers.co.uk

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