Can investors look beyond Africa’s short-term turmoil?

  

The Financial Times published an article recently that reiterated what many commentators have already observed, that despite the political upheaval in much of North Africa, long-term expectations for the rest of the continent still remains positive in the eyes of many investors, with the turmoil perhaps even offering up some good investment opportunities.

The article notes that last July, everything was going right for Africa. Investment funds, both specialist and general, had allocated a record US$1.39 billion to Africa so far that year, according to EFPR Global, a fund flow data provider; the football World Cup in South Africa was a great success; and two reports from McKinsey and Boston Consulting Group came out proclaiming the continent’s prospects.

Fast forward to December 2010, however, and events in Tunisia set in motion a series of popular uprisings that effectively thus far brought down two governments. Chaos ensued and investors were not slow to react, with EFPR Global figures showing weekly outflows from the beginning of February 2011. By 3 March the outflows totalled $103 million for Middle East and North Africa (MENA) regional equity funds and almost $200 million for Africa regional equity.

Interviews with various fund managers revealed the broad sentiment that while there was no direct impact on sub-Saharan Africa markets, these events reminded investors that investing in Africa does come with some risks. Risk, of course, is a factor in all investments, with events in Japan a prime example. Nevertheless, most specialist investors in the region are keeping the faith and believe Africa’s GDP and demographic numbers still add up to a strong long-term story, with recent Citibank figures predicting – that Africa’s share of global GDP will rise from 4% in 2010 to 7% in 2030 and 12% in 2050.

No doubt, notes the article, that there will be short-term volatility and outflows – or absence of inflows. But over the longer term, Africa could attract institutional investors in particular, many of whom missed the emerging markets boom.

Article produced by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.



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