Although ‘Africa risk’ has increased because of falling commodity prices, investors should look through this short-to-medium-term macro turbulence and position themselves for a rebound.
Over the past five years, it has become popular to say that ‘Africa is rising’. This great optimism has attracted global investors, placing Africa on the international podium as a new investment frontier with tremendous long-term opportunities. The continent recorded strong real GDP growth averaging 5% over the past decade. Today, Africa’s aggregate GDP is estimated at USD 2.4 trillion, which is exponentially higher than the USD 600 billion at the beginning of the new millennium. Africa is empowered by strong demographics with a young population of about 1.2 billion people.
However, the near-term growth outlook (4% in 2015-2016E) is lower than historical growth levels of 5%, primarily reflecting the adverse effects of falling commodity prices. The impact of this macro shock is heterogeneous across African economies, depending on their degree of GDP diversification and reliance on natural resources. This is not the first time the continent has been confronted with commodity shocks and history reflects Africa’s resilience to absorb severe shocks.
We believe there are seven long-term trends that will support African stock markets:
First, although we expect a slowdown in GDP growth to around 4% over 2015-2016, it should rebound afterwards to historical growth levels of 5-6%. Although oil producing countries are exposed to significant shocks in the short term, they have a unique opportunity to go through painful macroeconomic and fiscal reforms that are necessary for a sustainable, inclusive and diversified long-term growth trajectory. Growth in South Africa will remain low while North Africa appears to have a positive medium-term growth outlook.
Second, investments flows into Africa were robust over the past decade. Although investments in natural resources are likely to be lower as commodities prices collapsed, we expect Africa to remain a growing destination for foreign direct investments in the long term. Top-ranked sectors are consumer, financials and telecoms sectors, and there is a growing investment trend in industrials, power and energy, transports, real estate and healthcare.
Third, the African consumer has emerged over the past decade but purchasing power remains significantly behind emerging market peers in countries such as China and Brazil. The most important catalyst lagging is job creation. Africa must tackle its infrastructure deficit to stimulate private sector investments in labor-intensive industries. This will enable the continent to leverage its untapped demographic dividend to become part of the global value chain, thus boosting job creation and eventually purchasing power.
‘Infrastructure investments will allow Africa to leverage its untapped demographic dividend’
Fourth, infrastructure is the future: we have seen substantial private-public investments in telecommunication infrastructure over the past decade, but this is now shifting to energy, power and transport. There is an unprecedented pipeline for infrastructure investments, but execution will remain crucial.
Fifth, the pension fund industry is still very much undeveloped with the exception of South Africa. However, pension fund and insurance assets continue to grow significantly across the continent and this should gradually boost the liquidity of African equities and provide a tailwind for stock prices in the medium to long term.
Sixth: due to the current illiquidity of many African capital markets, we have seen massive capital flowing into African private equity (PE). PE funds have raised USD 25 billion to invest in the continent from 2007 to H1’2015. As PE funds seek exits in the medium to long term, we expect this to lead to a significant number of IPOs and therefore increase the investible universe of African equities.
Seventh, valuation has become attractive since the sharp correction across emerging markets including African equities. Entry points in Nigeria and Kenya are particularly compelling.
The content displayed on this website is exclusively directed at qualified investors, as defined in the swiss collective investment schemes act of 23 june 2006 ("cisa") and its implementing ordinance, or at “independent asset managers” which meet additional requirements as set out below. Qualified investors are in particular regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes and central banks, regulated insurance companies, public entities and retirement benefits institutions with professional treasury or companies with professional treasury.
The contents, however, are not intended for non-qualified investors. By clicking "I agree" below, you confirm and acknowledge that you act in your capacity as qualified investor pursuant to CISA or as an “independent asset manager” who meets the additional requirements set out hereafter. In the event that you are an "independent asset manager" who meets all the requirements set out in Art. 3 para. 2 let. c) CISA in conjunction with Art. 3 CISO, by clicking "I Agree" below you confirm that you will use the content of this website only for those of your clients which are qualified investors pursuant to CISA.
Representative in Switzerland of the foreign funds registered with the Swiss Financial Market Supervisory Authority ("FINMA") for distribution in or from Switzerland to non-qualified investors is Robeco Switzerland AG, Josefstrasse 218, 8005 Zürich, and the paying agent is UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zürich. Please consult www.finma.ch for a list of FINMA registered funds.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco/Robeco Switzerland AG product should only be made after reading the related legal documents such as management regulations, articles of association, prospectuses, key investor information documents and annual and semi-annual reports, which can be all be obtained free of charge at this website, at the registered seat of the representative in Switzerland, as well as at the Robeco/Robeco Switzerland AG offices in each country where Robeco has a presence. In respect of the funds distributed in Switzerland, the place of performance and jurisdiction is the registered office of the representative in Switzerland.
This website is not directed to any person in any jurisdiction where, by reason of that person's nationality, residence or otherwise, the publication or availability of this website is prohibited. Persons in respect of whom such prohibitions apply must not access this website.