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Thursday, July 18, 2013 - 02:16
Get ahead of the pack

The African continent is incredibly rich in natural resources with over half of the world’s gold reserves, 40% of the world’s platinum and 20% of the world’s uranium. While commodities markets are currently in neutral or recession cycles, it is crucial for investors to consider these opportunities now to ensure they are well positioned to benefit once the recessionary period is over.
This is according to Windall Bekker, Partner at Rezco Investment Consulting, who says he would expect the commodities markets to start picking up again. “In addition, the political and sovereign risk for many African countries has decreased significantly, making foreign domestic investments more attractive to overseas investors.”
He continues, “In fact, foreign direct investment is now pouring into Africa as some more developed countries, China in particular, seek to gain access to the continent’s resources. These investments bring extra cash into Africa and assist with infrastructure developments that are sorely needed to support further growth, for example better ports, roads, railways and telecommunication systems.
“Although the markets are currently in a comparative downturn, investors with an interest in Africa should probably look to invest sooner rather than later, as those who perceive opportunity early and act on it timeously are more likely to be rewarded with higher returns for longer periods.”
From a practical perspective, Bekker says that, while many foreign investors are interested in Africa, they have do have very real concerns about issues such as liquidity, sovereign risk and governance.
“As a result, there is a demand for companies with an economic footprint across Africa but listed on developed market exchanges, as this provides the investors with the liquidity and governance required to manage their downside risk. We see a demand on a look-through basis for countries with an ‘African footprint’, even though they might not be listed on an African exchange. MTN is a good example, with a listing on the FTSE/JSE but an economic footprint throughout Africa. The governance and liquidity is provided by the FTSE/JSE but the earnings are often driven locally.”
Ironically, one of Africa’s greatest challengers as an emerging markets investment destination may in fact stem from its BRIC partners in this grouping of leading emerging economies. Bekker clarifies, “South Africa’s prospects are very closely tied to the other BRIC and emerging markets. The demand for yield from the developed markets is significant and there is a much higher probability of achieving higher returns in the emerging markets. This can also affect Africa negatively, as investors will invest where they get the best returns for the risk taken and are not easily swayed by other factors, including humanitarian issues unfortunately. They will go where the most attractive opportunities exist at the lowest risk.”
Bekker adds that, in general, there is also a correlation between the foreign exchange rates of the emerging and other BRICS economies: “When the markets see an extra ordinary event or risk, there can be a decoupling of the exchange rate. This is potentially a signal to investors of an extreme event or risk that that the market is pricing in.”
Commenting that opportunities in Africa span all economic sectors, Bekker notes, “In the expectation that the disposable income of the expanding African middle class is going to continue growing, it therefore makes sense to invest in industries where that money will be spent. We see a big demand for the African consumer story from the international managers, which reflect the changing spending patterns across Africa.”

Copyright © Insurance Times and Investments® Vol:26.7 1st July, 2013
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