Investment Adventures in Emerging Markets

Africa: Investing in the Cradle of Civilization: Part 1

Africa is widely regarded as the cradle of civilization. Building on its storied history as the bedrock for humankind, Africa is also a continent of ample investment opportunity, provided you have the resolve to be in it for the long haul.

My team and I look at Africa as two parts: (1) sub-Saharan Africa where South Africa and Nigeria dominate and (2) the North African markets, where Egypt is the largest. Of course the South African market is much larger and more developed than the other markets in sub-Saharan Africa.  

We have been looking at a number of markets on the African continent, several of which have been developing quite rapidly, though they have a long way to go before their potential can be fully realized.

North Africa was the site, a year ago, of the Arab Spring. Since the revolution, the Tunisian market fell off the radar for many investors, but on a recent visit, I observed that life has largely gone back to normal, especially in terms of improved political stability.

Despite the revolution, there has not been as much of a correction in the Tunisian market as some might have expected. 

In Morocco, there is also shortage of opportunities we feel are attractively priced. Since Moroccans are not allowed to take money out of the country, they tend to keep it in a bank or invest in their local exchange. Nevertheless, my team and I are watching the active consumer story and the banking sector—with its West African exposure—with interest.

Egypt is interesting to us, too. It has one of the biggest economies in Africa with a population of 81 million1 and a diverse economy including banking, telecommunications, and tourism, as well as trade with the Middle East and Europe.  

Significantly, one year ago the Mubarak regime tumbled and since then the country has been somewhat chaotic, with capital leaving the country and not much coming in. As a result, foreign exchange reserves have been coming down.2 We do still see some investment opportunities, as we continue to like some companies that are not pure Egyptian plays, but rather have a regional exposure mainly in construction, banking or telecommunications operators.  However, there is very little visibility, and continued uncertainty in the political outlook there promises to muddy the waters for the next two to three years, in our view. With a new administration to come, it will be interesting to see what economic policy it pursues. We will, of course, continue to keep a close eye on developments.

I will also continue to monitor dynamics in Libya and I look forward to reviewing that market.  

Please check back soon as I continue my exploration of the investment landscape in Africa.

1 World Bank as of February 2012

2 Egypt Central Bank & CIA World Factbook 2011, Foreign exchange reserves at $18.1 billion (Dec 2011) vs $35.72 billion (Dec 2010 est.)

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