24 September 2010

12 Reasons to Invest in Africa

Over the past decade, South Africa outperformed the MSCI Emerging Markets Index


Forget the BRIC countries of Brazil, Russia, India, and China. Larry Seruma, chief investment officer of Nile Capital Management, says many retail investors are missing a tremendous opportunity for growth in Africa. Seruma manages the Nile Pan Africa fund, the first actively managed, U.S.-based mutual fund to focus exclusively on Africa. He recently released a report, which can be seen here, that explains his investment firm's reasons for investing in the continent.
Click here to find out more!
Seruma says more investors will begin to look outside of developed markets like the United States for growth, because those markets aren't expected to grow as fast as they have in the past. "It's only much more recently you're beginning to see these huge disparities coalesce," he says. "The U.S. is going to have very low investment opportunities going forward."
[See U.S. News's Mutual Fund Score to find the best investments for you.]
Investing in Africa involves plenty of risks. The biggest, Seruma says, is liquidity. "Liquidity is really the ability to trade frequently," he says. "When you want to get out of a position, it's not easy to get out of a position." Executing trades can be difficult because some African stock markets aren't as transparent and not as much trading takes place compared with, say, the S&P 500. There are other concerns, including the threat of government and corporate corruption. Many African countries have become functioning democracies, however, according to Seruma.
There are a number of other funds that give investors access to Africa and other "frontier" markets, which are also sometimes called pre-emerging markets. Templeton Frontier Markets and iShares MSCI South Africa Index ETF are two examples. Out of the 53 countries in Africa, Seruma's fund currently invests in 14, which together account for about 90 percent of Africa's overall market capitalization. Here are Seruma's reasons for investing in Africa.
'Ground-floor opportunity.' Seruma says many investors have already missed what he calls a "ground-floor opportunity" in Africa. For the decade ending Dec. 31, 2009, an African composite index made up of eight countries, including South Africa, Nigeria, and Egypt, returned about 14 percent annualized. South Africa alone returned an average of 13 percent per year over that period. Compare that with the MSCI Emerging Markets Index, which returned about 7 percent annualized, or the S&P 500, which lost about 3 percent over the same time period. He compares the risk versus return ratio in Africa today with emerging markets like China, India, and Brazil in the late 1900s—meaning that investors who enter a new high-growth market first reap the highest returns over time because they're willing to take on more risk.
[See The Opportunity in Africa.]
Low correlation. Correlation is a measure of how investments perform in relation to each other. A low correlation, for example, means that two securities will frequently move in opposite directions. According to Seruma's research, from January 2002 through June 2009, an African composite index of eight countries had a correlation of 0.59 with the S&P 500, 0.66 with the MSCI EAFE Index (which measures developed markets outside of North America), and 0.60 with the MSCI Emerging Markets Index. That means that 59 percent of the time, the returns of the African index differed from those of the S&P 500. Investors can use correlation statistics to find out how to better diversify their portfolios. "The African markets have a very low correlation with domestic or other emerging markets, so [you have a] good opportunity to actually reduce risk in the overall portfolio," he says. Diversifying your portfolio among uncorrelated assets can help offset big losses.
[See Why Emerging Markets Belong in Your Portfolio.]
Strong growth expected. According to projections from the World Bank, nine of the 15 countries in the world with the highest rate of five-year economic growth are in Africa. Seruma estimates that Africa is likely to grow by 4.7 percent over the next five years. Economists expect much slower growth in places like the United States and U.K. over the next few years. "It's a pretty huge growth differential," he says.

2 September 2010

Top tips from Africa's entrepreneurs

What is the secret of success in business? During Africa Economy week, BBC News asked entrepreneurs across the continent to give us their "top tips".

Market seller with strawberries, Ouagadougou, Burkina Faso
Running a business in Africa's harsh economic climate can be a real juggling act.

You have to think fast in business.

If someone asks - "Are you selling your blouse?" Sell it!

You can always buy another one.
You need lots of patience and nerves of steel

The first day I opened my shop, I only had five bunches of roses.

My first customer didn't see the flowers I had - all he saw was water.

So he asked me: "Are you selling water?"

I told him - "Yes!" That 20 cents he gave me was my first income.

You have to be brave. You have to be aggressive. Don't be embarrassed.

Nigeria is driven by nepotism.

But you have to hang in there.
When you have the right product and you wait long enough, the rainy day will come.
Also, putting in the street style works well for me.
Formal training can help. But businesses are driven by passion and innovation.
Even if I'd been to the best business schools, my business would still be driven by my goals.

Sylvia Banda, Zambia
Sylvia Banda's first restaurant had no tables. She now owns 16 eateries.
My advice - persevere.
I remember very well the first day I opened my restaurant.
I did not have any chairs. I did not have any tables.
My customers had to eat in a standing position. I told them - you're going to have a "standing buffet".
They laughed and continued eating, and that's how my catering business was born.
Today, we have 16 eating places in Lusaka and we have opened a college training students in hospitality.
It is important to say to yourself - I am as good as the other person. If that person can do it, then so can I.

You don't need to save a huge amount before you start your business.
You can begin working from your house, or even under a tree.
We started with a small amount - buying two or three dryers, chairs and other equipment a customer might need.
Anybody who came, we gave them good hair.
Then, by managing well, we have grown bigger.

Mainstream US Media Criticized for Ignoring Positive Developments in Africa

Africa Society president Bernadette Paolo says many Africa-related events continue to feature less prominently in mainstream US media
Photo: VOA.President Obama and the African Youth Forum
The president and CEO of the Africa Society of the National Summit on Africa says that important stories about Africa continue to feature less prominently in mainstream American media outlets.
The Africa Society is a nonprofit, nonpartisan organization that strives to educate Americans about the richness and diversity of Africa, as well as the economic opportunities that the continent offers.
Bernadette Paolo said, despite the fact that the month of August featured many Africa-related events in Washington, those events did not make the mainstream American media.
She said there is a need to demand positive coverage of Africa by providing the media with information that contrasts with the usual negative stories.
“When you ask students throughout the United States, the first four images that come to mind when they hear the word “Africa” is war, disease, starving children and animals. And, I think that the reporting in the media is primarily negative,” she said.
Paolo said, although there are challenges facing African countries, Americans need to know the contributions the continent is making and the potential it holds.
“When you think about it, many of the mineral resources in the entire world are from the continent of Africa, never mind the fact that the African diaspora in the United States is the highest educated among all immigrant populations. These are facts that never come to the fore through the media,” Paolo said.
She said changes in U.S. foreign policy toward Africa over the years suggest that Africa is getting the attention it warrants from the U.S. government.

MICROCAPITAL BRIEF: Commercial Banks and Microfinance Institutions (MFIs) in the Economic Community of Central African States Required to Raise Capital Reserves to $20m

The Committee of Banking Supervisors of West and Central Africa, an organization that supervises credit establishments and sets prudential banking legislation in western and central Africa, announced earlier this week that starting from 2014, all commercial banks including microfinance institutions (MFIs) in the Economic Community of Central African States (ECCAS), a subsidiary of the African Union [1], will need to have capital reserves of USD 20 million.
The decision was made during the committee’s last meeting in Yaounde, Cameroon. This represents a 400 percent increase from the original requirement of USD 4 million. Idriss Ahmed Idriss, the president of the committee stated that the new requirement would “strengthen the banks and microfinance institutions in Central Africa by raising their required capital reserves.”
[1] About the Economic Community of Central African States:
The Economic Community of Central African States (ECCAS) is an economic community of the African Union which aims to promote collective autonomy, better standards of living and economic. There are 11 member states, including Angola, Burundi, Cameroon, Central African Republic, Chad, Democratic Republic of Congo, Equatorial Guinea, Gabon, Republic of Congo, Rwanda and Sao Tome and Principle.
A group of financial experts has ordered all commercial banks in the Central African Economic and Monetary Community, CEMAC, to raise the minimum amount of their capital reserves.