There are two investment themes in Nigeria I would highlight as being particularly interesting. The first is the consumer opportunity generated by that very attractive demographic profile. You need to think of the consumer on a small scale. For example, we have exposure to a company that makes chicken stock cubes. In a country where most of the people are living on less than $2 a day, they can’t afford the protein but they can afford protein flavouring. Chicken stock cubes are fortified with iodine, which is very important for brain development. The advertising targets Nigerian mothers who care greatly about the welfare of their children. It’s a product that is small in scale but huge in terms of impact. Fifty million of those are sold a day throughout Nigeria.
The second theme I would highlight is infrastructure. This country is literally in the process of being built and that is throwing up all sorts of interesting investment opportunities. In order to grow strongly, Nigeria needs to address its power issues. Specifically, only 20% of power in the country is generated off the main power grid. The rest of the power is generated off diesel power generators which are a very inefficient and expensive power supply. Solving these power issues is going to massively speed up growth rates, and there’s lots of investment opportunities set to profit by being focused on the power sector.
Do you invest directly in companies based in Africa or through Western companies doing business there?
Katie Koch: We invest directly in companies in Africa. In the case of Nigeria we are invested in companies listed on the Nigerian stock exchange, although we have to be very selective. It’s a very interesting story but we need to do all the due diligence.
We are not invested in the full public equity market but we do find a couple of companies benefiting from some of those themes that I highlighted, run by good management teams, with strong balance sheets and attractive valuations. There are also a lot of well-run companies in South Africa benefiting from growth in other parts of sub-Saharan Africa and Nigeria. For example, there are mobile phone operators listed in South Africa that have a lot of subscriber growth in Nigeria. Mostly, however, we invest directly in sub-Saharan Africa.
Anthony, what is your approach to investing in Africa?
Anthony Eaton: Our interest in Africa is threefold: what the continent can export to the global economy that the global economy needs; the domestic consumption that triggers by bringing money from the outside world; and thirdly the infrastructure it builds.