7 top ways to invest in Africa
7 top ways to invest in Africa
African countries are becoming more important players in the world economy, with some of the fastest-growing economies in the world. Young and fast expanding, household incomes and consumption are expected to increase. Africa is ready for mass manufacturing because to the rapid expansion of digital and mobile connectivity and the elimination of the infrastructure deficit. The American government has also made ground-breaking efforts to assist investors. Additionally, with changes being made to the business environment across the continent, investment in Africa’s various and diverse nations is considerably more appealing than it was in previous decades.
Despite the effects of the global epidemic, there are numerous investment prospects on the African continent. The continent’s rapidly expanding population, digital economy, and financial markets offer lucrative investment prospects.
Given the maturation of other economies, many investors view Africa as the “last frontier.” These countries, which have well over a billion people and abundant natural resources, have gained favor among investors over the years. War and government changes, however, have also debilitated the region and deterred many businesses and investors.
The best investment prospects in Africa and how to take advantage of them will be discussed in this article. But before that, it’s critical to research the various regions of Africa and how welcoming they are to investors.
Various parts of Africa to consider for investing
By region, investing in Africa varies considerably. In terms of its oil resources and important industries, Northern Africa is similar to a large portion of the Middle East. Considering its robust mining sector, South Africa is regarded as having a more developed market. Sub-Saharan Africa still has a lot of barriers in place for foreign businesses. Less developed economies are included.
The most well-liked location for investment in this region of the world is South Africa. Mining and raw commodities are major drivers of the economy. It is the world’s top producer of gold, platinum, and chromium, but it also has major agricultural and banking sectors. Its consumer class is gradually reducing its reliance on exports, which is driving the rise of domestic services.
Algeria, Egypt, Libya, Mauritania, Morocco, Tunisia, and the Western Sahara region make up Northern Africa. These nations are well-known for having large deposits of crude oil. Libya has the ninth-biggest oil reserves in the world and the largest in Africa.
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Let’s now look at some of the best investment prospects in Africa to take into account when considering making an investment in the continent.
- ETFs and Mutual Funds
One can invest in African countries through mutual funds and exchange-traded funds (ETFs). These funds have built-in diversification and are traded on American stock exchanges. They are far less expensive than using American Depository Receipts (ADRs), which are foreign companies that trade on international stock exchanges, to establish a portfolio. The iShares MSCI South Africa ETF is the most widely used South African ETF (EZA). It is the only pure-play investment available in the nation.
Due to the less well-known rest of Africa, there aren’t many wide investment choices in the area. The first option is buying Middle Eastern and Frontier Market ETFs with exposure to these nations. The second choice is to invest in commodity ETFs, such as those that are concentrated on copper and gold, as many of them have abundant natural resources. VanEck Vectors Africa Index ETF is one of the most well-liked ETFs for investing in Africa (AFK).
If you’re thinking about investing in Africa through mutual funds, you should also look at African asset managers. For instance, the Coronation UF Africa Frontiers Fund is managed by South African asset manager Coronation Fund Managers. However, in the previous 12 months, Sanlam African Frontier Markets, managed by Sanlam Investment Managers in Cape Town, ranked last in its class.
- Direct investments
There are so many brave, vivacious, and ambitious entrepreneurs in Africa that it would be a tragedy to exclude them from the start. Direct investment will be highly alluring, especially if the investment project is in a field in that you are already well-versed in. We have encountered numerous inspiring businesses on our numerous journeys around the African continent. If you have a competent partner by your side, managing the legal and regulatory components of direct investment is not that challenging.
- Equities
The Johannesburg Stock Exchange is Africa’s most advanced and liquid stock market (JSE). A wide range of industries, market capitalizations, and financial instruments are available in the South African market. JSE has a market value of more than USD 1 trillion, placing it among the top 20 stock exchanges in the world. Investors should also take into account the stock exchanges in Lagos, Nigeria; Nairobi, Kenya; Cairo, Egypt; and Casablanca, Morocco. Due to the widespread use of internet brokers at all African stock exchanges, market access has significantly improved. Investors should be warned, meanwhile, that many African equities don’t take their reporting responsibilities properly. Additionally, the market for some stocks is frequently quite competitive.
7 top ways to invest in Africa
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- Private Equity
Africa’s private equity industry fared pretty well against the COVID-19 pandemic. In the first half of 2020, the industry continues to raise USD 1.1 billion. In recent years, venture capital (VC) and private equity (PE) have established themselves as significant drivers for financing the African economic story.
There are private equity funds formed by the major worldwide PE firms and more specialized funds run by European asset managers like Améthis in Paris if you are considering investing in African companies. Some funds that invest in Africa are supported by enormous development finance institutions. For instance, the African agriculture and agribusiness investment fund AATIF is supported by the German development bank KfW.
- Real Estate
Africa’s population was 1.37 billion as of May 2021, according to Statista. And numerous predictions have been made that it will continue to expand. For instance, the United Nations predicts that by 2050, there will be 2.5 billion people living on the continent. These figures signify lucrative potential for African real estate investors. Investors can make easy money as the continent continues to endure a population explosion and fast urbanization.
The most populous nations in Africa, according to data from Worldometer, are South Africa, Nigeria, Ethiopia, Egypt, and the Democratic Republic of the Congo. With a population of over 206 million, Nigeria tops the list, followed by Ethiopia, with a population of over 114 million. Over 102 million people live in Egypt, compared to over 89 million in the DRC. These numbers show the number of people who are now in need of adequate and affordable housing. And any real estate investor who can do so can be confident in their returns.
- African tech startups
The fact that the tech ecosystem in Africa is among the fastest-growing in the world is no longer news. African IT startups raised close to $5 billion in funding in 2021. Nigeria, South Africa, Egypt, Kenya, and Rwanda are a few of the African nations with the most thriving IT sectors. FinTech, HealthTech, EdTech, AgriTech, and other sub-sectors perform best.
- Invest in Agriculture
According to the Oxford Business Group, only 14% of Sub-Saharan Africa’s GDP comes from agriculture (GDP). Even though 60% of the world’s arable land is found in this continent. And because of this, it has the ability to not only be self-sufficient but also to feed the rest of the globe.
Notably, the cost of importing food into the region rose to a record level in 2021. Africa imports food worth $35 billion annually, according to data from the World Bank that are currently available. According to another analysis by Empower Africa, low yields are caused by a lack of irrigation systems, automation, and suitable storage facilities.
Given all these issues and possibilities, it is safe to claim that the agricultural sector in Africa presents high returns for investors and an opportunity to drive expansion that moves the continent closer to food sovereignty. Investors who can offer solutions to these issues stand to gain a lot from their efforts.
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