12 Reasons to Invest in Africa
Forget the BRIC countries of
Larry Seruma, chief investment officer of
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."
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
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
Here are Seruma's reasons for investing in Africa.
Seruma says many investors have already missed what he calls a "ground-floor opportunity" in
Africa. For the decade
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
Strong growth expected.
According to projections from the
There are a number of well-known companies that are based in Africa,
Demand for commodities.
"It's mainly driven by [the] BRICs," Seruma says. "As they industrialize, they're going to be demanding more and more of these commodities." For instance, 10 percent of the world's oil reserves and 40 percent of the world's proven gold reserves are found in Africa, according to Seruma.
Increasingly less violent.
According to Freedom House, 63 percent of
Seruma singles out China because many Chinese companies -- some of which are backed by the government -- have made significant investments in Africa. "They are really taking a long-term view about investing in Africa," he says. The governments of countries like China have realized that they're going to need resources from the African continent to fund their growth and consumption in the future, Seruma says.
Countries are no longer coming to Africa
solely to extract resources. They're beginning to stay and help make important infrastructure improvements in the country,
Seruma says. "The old story of investment in Africa was
'let us get the natural resources out of the ground and immediately ship it out,'" Seruma says. "Now it's changing. Not only do
they go to Africa and make
an investment in Africa,
but they're also making the additional development projects." For instance, diamond giant De Beers recently signed a deal
to mine diamonds in
Concerns about sovereign debt -- the debt that governments owe -- has made headlines in
Growing investment from abroad.
Seruma also cites a
Seruma believes that many African countries are currently trading at attractive valuations. He says the average
price-to-earnings ratio for African companies is about 8 to 9 percent compared with the
Compared with other regions of the world, Africa
has a much younger median age, which means African governments aren't as burdened by elderly populations and pension plans.
It also means that Africa
has a young, vibrant workforce, Seruma says.
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