Investing for impact in Africa has long been the preserve of development finance institutions (DFIs), foundations and ultra-high-net-worth individuals. If the United Nations’ Sustainable Development Goals (SDGs) are to be achieved, it is crucial that additional sources of capital be brought to bear, and providing mechanisms through which all categories of investors are able to invest for impact is key to unlocking private capital.
Everybody is talking about infrastructure. Infrastructure provides the framework under which an economy performs and the state of roads, the quality of telecommunications and the stable supply with power, to name just a few examples, more often than not makes the difference between a successful and a struggling economy.
Over the last three years, GDP growth in sub-Saharan Africa (SSA) has been on the downtrend due to a crash in commodity prices (oil and natural resources), weak external demand, drought, and security problems. The real GDP in SSA grew at 1.5% in 2016 (the weakest since the 2008–09 global financial crisis); global expansion for 2016 was estimated at 2.3%. The GDP growth rate for SSA averaged about 6% during 2010–14, declining to 3.4% in 2015 from 5.1% in 2014.
Over the last decade, there’s been an increased vocalisation of investors’ concerns about the cost associated with investing. This concern has stemmed partly from the growing income disparity evident in society, which was epitomised by the Occupy Wall Street movement which started in Manhattan in September 2011. The Occupy movement sought to highlight the inequality in society, but unfortunately six years later has all but disappeared. The tragedy is that the extent of income disparity remains a socio-economic issue which requires resolution and may well have been the undercurrent which has been surfed by populist political agendas in the last year. A further driver of this investor focus on cost has been the dearth of excess return or alpha amongst active managers. As a result investors responded by moving “en masse” into passive beta products, which offered market exposure at a discount to traditional active management fees. Since this initial response, passive ETF (exchange traded fund) flows have exploded. Deutsche Bank estimates that global ETF AUM has increased to $3.5trn in 2016 from just over $500m in 2006 (See chart below).
By Jonathan de-Lance Holmes (pictured), Investment Management Partner, Linklaters, Johanna Monthe, Investment Management Lawyer, Linklaters and Nicole Paige, Private Equity Partner, Webber Wentzel
In 2016, real GDP growth in sub-Saharan Africa is estimated to have been the weakest since the 2008-09 global financial crisis. This was largely because of the weak performance in its two largest economies, South Africa and Nigeria, which together make up about half of sub-Saharan Africa's GDP.
The “Africa Rising” narrative is increasingly giving way to that of “Aspiring Africa”, as the Base of the Pyramid (BoP) shrinks and the new middle class burgeons, says Wim van der Beek, founder and managing partner of Goodwell Investments
Over the past decade Mauritius has earned an enviable reputation as Africa’s preferred risk-mitigation centre, attracting a wide range of corporates and funds seeking to understand, navigate and access African growth.
The African growth story is no longer a fairy tale. Over the past decade multinational companies, private equity funds and infrastructure development programmes have channeled capital to the continent as they began to realise the true potential it holds, but like most emerging market regions, Africa is no longer the ‘flavour of the month’.
Looking at the JSE super sectors, it is extremely interesting how their contributions to the JSE Top 40 Index (Top 40) has changed over time. In part, this reflects the changing fortunes of the sectors in the South African economy, but there are other factors at play here too.
Donald Trump was declared the next president of the United States (US) on Wednesday, November 9. The election outcome caught markets by surprise, and the global economy is now facing significant uncertainty only months after another surprise decision by the UK to exit the European Union. The consequences of a Trump presidency for Africa remain uncertain. Some broad Trump policy ideologies that have emerged include trade protectionism, fiscal austerity and anti-immigration, amongst others. That said, questions remain as to how aggressive these policies will be pursued – Mr Trump’s stately victory speech was somewhat surprising and a sign that he will adopt a more measured approach as president.
Regardless of who wins the US presidential election, EM looks poised for continued outperformance due to improving absolute and relative fundamentals, higher yields and sound technicals. The short-term market dynamics may be different depending on who becomes the next US president, but we expect the winner to be inevitably and severely constrained both politically and economically.
Africa, to some the dark continent filled with countless risks, to others a land of beauty and incredible opportunity. Is Africa indeed rising or is and will it remain in a quagmire of constraints?
Frontier markets have come a long way since emerging as an asset class. Africa ex-SA stocks are now part of not only Africa-focused or frontier funds, but also appear in portfolios of larger GEM funds. With frequent Africa-focused conferences occurring in London or New York, exposure to the population growth and consumer story is still a strong attraction for investors. This is whilst the low correlation, low volatility story has been shaken by the turbulence experienced by some economies, due to the oil decline.