by KS

I’ve been doing a bit of research (i.e. reading) into Africa. My interest was first sparked by an interesting article on regarding Investment Opportunities in – yes that’s correct – Zimbabwe. It was written by Graham Stock from UK-based Hedge Fund Insparo Asset Management. It is a very concise article and well worth a read.


In summary their view was that despite the ongoing political worries, the country and its economy have seemed to reorganize themselves around those issues. After essentially abandoning their domestic currency in February 09 in favour of foreign issues, such as the South African Rand, Botswana Dollar and of course the US Dollar, hyperinflation has been tamed. Wikipedia provides a good description of what has been happening with regard to domestic monetary system. Based on IMF data YoY inflation has come down to ~5% with the latest reading for November being 4.2% according to a Reuters article.

Summary Economic Statistics

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Real GDP (% YoY) -8.4 -5.6 -10.6 -4.2 -7.7 -4.6 -5.5 -14.5 4 2.2
(% YoY)
75 135 385 381 267 1,034 12,563 56bn 6.5 5
Trade Deficit (USDm) -323 18 108 305 388 467 310 997 1,607 1,397
External debt (USDbn) 3.6 3.9 4.5 4.8 4.3 4.7 5.3 5.8 7.1 7.6

Source: IMF; The Reserve Bank of Zimbabwe; EIU; World Bank, Harare.

The article continues to quote some significant improvements in economic indicators, such as bank deposit growth (deposits rising from $20mm in February 2009 to around $2bn this year). It even seems that their agriculture sector is slowly recovering after Mugabe almost destroyed it. Maize crop has risen from 400,000 tons in 2008 to 1.3 million in 2010. While this is still far of from Zimbabwe past production levels (it used to be called Africa’s food basket), it at least provides a level close to self-sufficiency. Zimbabwe’s farming sector can produce, and has produced in the past, exportable surpluses of maize. But severe constraints on prime land use have resulted in less than full capacity utilization of its natural resources. However, since the economic reforms, farmers are better equipped to plan and prepare for the season, as a result of the comparatively steady inflation rate. In conjunction with the large input support programmes partly organised by the UN (Food and Agriculture Organization) that significantly increased the availability of inputs, production increased over the last two agricultural seasons, albeit from a very low base in 2007/08.Maize Production

Source: 1999-2007 CSO, 2008-2010 AGRITEX.

Inquiring minds can find out much more on the website of the FOA for example (

Reading the ft-tilt piece I remembered a previous article from Ambrose Evans-Pritchard. After quickly googling the keywords I found it on the UK Telegraph’s website. It is a very good description of some positive signs coming out of Zimbabwe.

While I’m highlighting the positive developments here, there is of course a long list of problems in Zimbabwe, such as corruption at almost every level of economic activity. An article by Takunda Mugaga from South Africa’s Financial Gazette provides a very good summary of the issues still facing Zimbabwe. However the rate of change has clearly turned and overall conditions are improving in Zimbabwe. From an investment perspective this stage in the economic cycle generally provides some great opportunities as the piece highlights

Broader sub-Saharan Africa

Coincidentally I came across an interesting economic review of African data through the valuewalk blog. It reprinted an article from EU think tank VOX ( during the same week.  While the piece is a good read in its entirety, it comes down to dismissing the prevailing view that Africa is a lost cause. While the latest UN Millennium Development Goals report states that “”little progress was made in reducing poverty in sub-Saharan Africa”, the authors of the VOX article disagree:

The sustained African growth of the last 15 years has engendered a steady decline in poverty that puts Africa on track to meet the Goals by 2017. If peace is established in the Democratic Republic of Congo, and it returns to the African trend (which is what happened to other African nations that were formerly at war), Africa will halve its $1/day income poverty rate by 2013, two years ahead of the 2015 target.

Moreover, African poverty reduction has been extremely general. Poverty fell for both landlocked and coastal countries, for mineral-rich and mineral-poor countries, for countries with favourable and unfavourable agriculture, for countries with different colonisers, and for countries with varying degrees of exposure to the African slave trade. The benefits of growth were so widely distributed that African inequality actually fell substantially.

While the article provides much more detailed analysis the following graph highlights the massive improvements sub-Saharan Africa has made. It shows real GDP per Capita on the right axis and the poverty rate as measured by the percentage of people living on less than $1 a day on the left axis.

Africa improvements

If anyone would like to find out even more about the economic developments the most recent IMF report on sub-Saharan Africa provides a vast amount of data and interesting charts and analysis

Investment Opportunity

Now I do not want to make the folly mistake of relating economic changes with investment returns. Many academic studies have looked at this relationship and generally concluded that either there is no relationship between economic growth and equity investment returns or that this relationship is even negative, i.e. higher growth produces lower stock returns. I do not want to get into the detail of this but I do want to highlight that it is extremely important to make sure as an investor to focus on the right industries and companies. In that regard finance is a sector that can be expected to grow significantly with GDP per capita expanding. In addition the telecommunications sector is growing rapidly providing an essential infrastructure item for the further development of other more consumer focused industries. Other ideas would include looking at western brands/companies that have a large or growing exposure to African countries. See for example the growing investment of Yum Brands (famous for the KFC fast food chain) into Africa. According to a WSJ story KFC expects to more than double its revenue from Africa within the next 4 years.

Unfortunately it is relatively difficult to gain exposure to African countries other than South Africa. From the above mentioned IMF report comes this chart, showing the massive difference in the relative size of the stock markets.

Africa Stock Capitalization

In addition market liquidity is only 10% of the value of shares traded each year. Countries with reasonable liquidity include Kenya, Mauritius and Nigeria. For people with access to US listed stocks, possible low-cost investments include the two Africa ETFs AFK and GAF. For European investors a possible vehicle includes the Lyxor Pan Africa Fund. All of these have a relatively large weight to South Africa, given its significantly larger market capitalization. Of course to those available there are managed investment funds that focus on Africa such as Insparo mentioned above.

In terms of returns African securities collapsed similar to all other risk assets during the financial crisis. The subsequent recovery starting in March 2009 has been impressive.

AFK Performance

While Investment is difficult ignoring Africa is like ignoring Emerging markets in the 90’s, SE Asia in the 70’s and Japan in the 50’s.

I realise this is obviously not an exhaustive overview of the investment case for Africa, but I hope it at least stimulates some further interest and I am always happy to do some more digging to answer some questions that may come up.