The FTSE 100, the Dow Jones, the CAC 40… the Renaissance Capital Africa Index? To a long list of global stockmarket indices we can now add a new one, which will track the performance of the top 50 companies in sub-Saharan Africa, excluding South Africa. It’s a bold move, but coming after this week’s launch of the New Star Heart of Africa Fund, a prescient one.
It seems everyone wants a piece of the dark continent. With the sub-Saharan economy growing at 6% a year, and set to jump to 6.8% in 2008, it’s hardly surprising. “You’re talking about a region that has 15% of the world’s population, 20% of the world’s land mass, but only produces 2% of global output at this stage”, says John Bates of investment bank Renaissance. “So what we have is a huge, untapped, but not very well understood, investment opportunity in all shapes and sizes.”
But it’s not for novices, warns William Kay in The Sunday Times. The New Star fund is “throwing the dice in a big way, looking for hidden gems in some of the riskiest commercial environments on the planet.” In every global survey on perceptions of corruption, African countries almost always come in at, or near, the bottom.
But governance issues are being tackled, most noticeably in east Africa, where Uganda, Tanzania and Kenya all boast growth rates of 6% to 7%. That’s down to more macro-economic reforms and increased spending on infrastructure, says Standard Chartered’s Razia Khan in South African newspaper Business Day. The end of long-running conflicts has also benefited the area, most notably in Mozambique and Angola. The latter is expected to grow 31% this year, largely due to rising oil exports. But while “sub-Saharan Africa is clearly enjoying its best period of sustained growth since independence”, says the IMF, “most others” are also beating historic trends.
Africa should also avoid becoming a bubble economy any time soon; unlike other emerging markets, it is far harder to pump large amounts of foreign capital into the stockmarkets. Shares still look reasonably valued as a result. The minimum direct investment in the New Star fund is £12,500 – too much to invest in such a volatile region for most. But investors can put in a much more realistic £1,000 through a fund supermarket such as Hargreaves Lansdowne, says HL’s head of research, Mark Dampier.