Africa’s consumer-facing industries have the potential to deliver good investment returns, according to Robert Scharar, Commonwealth Funds manager and president of financial planning and investment firm, FCA Corp. [hidepost=9][/hidepost]
Scharar is the fund manager for the newly launched Africa Fund – based in the United States – that invests in publicly traded companies across the continent. The fund is less interested in investing in resource companies in Africa, and focuses more on businesses targeting the continent’s growing consumer class.
“One of the reasons for that is that the resource companies tend to be global in nature,” Scharar told How we made it in Africa. “Many of those companies are global securities so you are not offering the shareholders something they couldn’t access really easily on their own. So while we might buy stocks in resource companies, we tend to look for the growing service businesses and other things… So we would look at companies involved in consumer goods sales, it could be supermarket chains, it could be transportation companies, it could be banking and health service providers – things that are servicing what we see as a growing consumer class across the continent of Africa.”
The Africa Fund was launched in 2011 and became one of the five mutual funds of the Commonwealth International Series Trust. According to Scharar, who has over 20 years experience of investing in the African market, the continent’s stock exchanges are becoming increasingly more developed.
“I remember going to the stock exchange in Zimbabwe in the late 1990s and we visited in the morning and it was a session that probably lasted 10 or 15 minutes and everyone broke for lunch and they said, ‘if you want to see us trade again just come back this afternoon and we will repeat the same process’. There was a blackboard and they were writing the bids asked for the stocks on the board and it was very low volume and quite a laidback affair. Many stock exchanges that exist today were largely unfunctioning or certainly didn’t function the way they are now.”
“If you look regionally, for example in Southern Africa, there seems to be a concerted effort on the part of the stock exchanges in the SADC region to really link their knowledge base and their trading and other activities, and that seems to be happening really quite rapidly in terms of integrating the services and the availability of those stock exchanges,” he continued. “So really we have a huge difference.”
According to Scharar, the existence of a stock exchange in a country is an important statement on transparency and governance.
Where to seek returns on investment
“I think the African markets in many cases [offer] great value,” said Scharar. “The dividend yields are higher than the US market’s. When you look at fundamental valuations of companies, the types of things we look at is what is the price to the book value of a company, what is the price to the earnings, what is the dividend yield, what are their growth rates – those statistical bases often are very, very attractive in African public companies. So you can be rewarded. The timing may not be tomorrow morning, but it’s certainly in my lifetime and it’s not necessarily decades away at all. This can happen fairly quickly… in the US right now our dollar is very strong largely because everybody else’s is very weak, but that can reverse fairly quickly… and I think it’s just a great opportunity to diversify your portfolio by investing in Africa.”
An increase in consumer spending power across the continent has caught Scharar’s attention. He believes that the growing consumer class offers a significant opportunity for investors.
He added that urbanisation is also boosting demand for basic consumer goods and services, and for this reason, the Africa Fund looks at companies that have the ability to meet this demand.
Tourism in Africa is another area where Scharar sees potential for investment. He said that there has been a shift in this industry and it is no longer simply defined by tourists visiting Africa from outside the continent.
“I now notice more and more local people becoming true tourists and this is particularly important outside of South Africa. South Africans have travelled all over their country extensively and often in the region. But now what you are finding is that people from other countries of Africa are becoming tourists in their own countries and certainly adjacent countries. So this whole thing seems to be expanding in terms of products and services, driven by the fact that there is more money available, people’s education has improved, and with that the desire to change their lifestyle… All those things, in my mind are leading to great opportunities.”