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Africa – the final investment frontier

Emerging market economies such as China, India and Latin America have rocketed in recent years. Thousands of UK investors have cashed in by buying into funds that buy shares in those countries.

For instance, the Jupiter China fund has doubled investors’ money in the past year while the Invesco Perpetual Latin American fund has returned 44% in the past year, according to fund analyst Trustnet.

Now, after decades of languishing economic growth, some experts predict Africa may be the next region to pay dividends to investors. A measure of the interest is the fact New Star, one of the City’s more innovative fund managers, is to launch the Heart of Africa fund this week. The New Star fund is one of only a handful of Africa portfolios available and will invest in the sub-Sahara region excluding South Africa.

Africa’s history of economic woes and the political instability has meant it has previously been labelled the ‘hopeless continent’. Despite harbouring some 30% of the world’s gold and almost half of its diamonds and platinum it has consistently failed to cash in on its enormous wealth of natural resources.

But the fund manager Jamie Allsopp, who also runs the new star hidden value New Star Hidden value fund, which itself has investments in Africa believes a ‘wind of change’ is sweeping through the region, which is presenting investment opportunities in what is still a very undeveloped market.

However potential investors should be cautious, as in New Star’s own words, ‘this fund is high risk and therefore only suitable for investors who are able to bear the loss of all or part of their capital investment’.


So what’s changing? Peace in the Democratic Republic of Congo, northern Uganda and southern Sudan is creating big trade opportunities.


The establishment of the East African Customs Union (EAC) has led to a rapid increase in trade between Uganda and Kenya, with goods worth £211m exported to Kenya last year, compared with £174m in 2004. Both Rwanda and Burundi joined the union this year and as a result the EAC will have a combined economy of more than £21bn with a total population of about 120m.
New Star says recent changes in the region have presented high-risk investors with an opportunity. The group points to the dependence of rapidly growing Asian economies and decreasing political risk – the number of democracies has risen from 10 in 1980 to 33 today while the debt burden has fallen from more than 100% to around 20% of gross domestic product since 2005.


Fast Facts:
In 2007, 23 African economies were growing individually at 5% or more; in total 18 non-oil producing African countries have averaged growth of 5.5% between 1995 and 2005.

  • African ingenuity and entrepreneurship attracted a new wave of foreign investment of approximately $30.5 billion in 2007, up from $22 billion in 2006 and just $4 billion in 1995.
  • Inflation in sub-Saharan Africa decreased from 18% in 2000 to approximately 8% in 2008.
    S
    enegal, Burkina Faso, and Botswana were among the top ten business climate reformers in the world in 2007-2008.
  • Cell phone subscriptions in sub-Saharan Africa grew by more than 60% annually between 1994 and 2005.

The appetite for its raw materials, from the soaring economies of emerging markets such as India and China, is fuelling a boom in prices. This boom has stimulated widespread developments in transport, infrastructure and telecommunications.

Allsopp says: ‘The investment landscape has changed significantly in Africa. Strong economic growth, high levels of foreign direct investment, increasing political stability and the resultant improvement in corporate governance have created a compelling investment backdrop and it is no surprise that some of the best performing markets in the world are situated in sub-Saharan Africa.’

The future of the world is Africa

The African Business Weblog is dedicated to contributing to the learning environment, diversity and global opportunities in African business, investing, media, internet marketing, workshops, conferences, stock markets, venture capital, tourism, blogs, web 2.0, africa SEO and other innovative business strategies for Africa.
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