EVEN in times of relative stability, media reports on Africa lead many investors to think they can find better places for their money. So with turmoil rolling across the north of the continent this impression has only intensified – the jubilation of Cairo’s Tahrir Square has been replaced by the brutality of Muammar al-Gaddafi. However, if you have written off the continent as a lost cause you might be missing out on a great opportunity to buy in low. Now is the time to look at Africa, according to Sven Richter, head of frontier markets at Renaissance Asset Managers.
Richter is bullish on holding a diverse exposure in stocks across the continent and puts forward a very convincing case. The South African born asset manager is passionate about the potential of the people and companies working in Africa, and the prospective profits of tapping into their abundant resources in the years ahead. He runs two African funds available to the retail investor: the Renaissance Pan-African Fund and the Renaissance Sub-Saharan Fund. The former has a significant amount invested in Egypt, so with the stock exchange still not open for business, it is probably best to wait for the dust to settle before taking a look. The latter, though, is largely invested in banks, consumer discretionary and non-discretionary companies in Nigeria and Kenya, so is not exposed to the current areas of instability.
“The next five or 10 years in Africa are going to be really good”, according to Richter. He gives two examples of how companies have made serious headway despite difficult local conditions. In Kenya, Equity Bank has pioneered lending to retail customers. Prior to their entry into the market, banks only lent to the government, blue chip companies and people in senior management positions. Equity Bank balanced the risks of lending more widely by getting to know their customers for three years prior to making loans. The company has been a success story, indicative of how innovative solutions can overcome what others see as intractable problems. Another mechanism for growth can be seen in Nigeria where MTN, the South African mobile phone company, has tapped into a massive market – in fact, Nigeria is now a larger market for the company than South Africa. As Richter says: “relatively small steps in technology can have a huge impact on growth in Africa.”
While everyone else is watching the headline events unfold across north Africa, contrarians and value investors should be looking for opportunities. Richter believes “now is a good time to invest.” He “can’t tell you whether it is going to be cheaper next month than it is now.” But “if you have some money and put it in over the next three months you are going to be pretty certain of getting it at the bottom.” Perhaps serious profits might soon be borne out of the cradle of humanity.