Download Why Invest in Africa?

Why Invest
in Africa?
Africa has been
the world’s fastest
growing continent
since the turn of
the Millennium but
despite Africa’s
outstanding
economic
performance only a
handful of investors
have begun to realise
its potential
01
STANLIB Africa Overview
04
02
The Four Pillars of Africa’s Growth
04
More stable and democratic
04
Opening itself up to free trade
05
Labour force
06
Fixed investment has surged 06
03
Common Misconceptions About Africa
08
Africa is heavily indebted
08
Africa suffers fromendemically high inflation
08
Africa is inefficient, lacks transparancy and is corrupt
09
Africa is too small to bother with
09
Africa is too Risky
09
04
The Time is Now
10
Why Invest in Africa?
Africa - The World’s Fastest Growing Continent
Africa has been the world’s fastest growing continent since the turn of the Millennium.
Despite Africa’s outstanding economic performance, only a handful of investors have
begun to realise its potential. However, that is not unusual! South East Asia’s economies
had been growing rapidly for 20 years before they began to attract serious attention from
global investors in the 1980s. In the investment world as in many others, perceptions can
lag reality by a surprisingly long time.
STANLIB Africa Overview
Our Heritage
STANLIB is one of Africa’s leading asset managers with its headquarters in South Africa, managing assets in excess of R565
billion* for over 400 000 retail and institutional clients across the African continent. STANLIB was founded in 2002 when Liberty
Asset Management and Standard Corporate and Merchant Bank (SCMB) Asset Management merged. Liberty Asset Management
and SCMB Asset Management had managed investments for over 25 years prior to their merger.
STANLIB has adopted the Franchise Model which is designed to deal with the complexities of the investment world with
agility. This operating model provides the advantages and commitment of a boutique house and the strength and efficacy of
a large investment house.
Our Africa Footprint
Linked to the STANLIB footprint across Africa, the teams have an on-the-ground competitive advantage when originating
potential investment opportunities and in converting these opportunities into successful investments.
In addition, the teams remain linked into the 18 African country Standard Bank/Stanbic Bank network , further enhancing their
ability to incorporate vital local knowledge into their offering.
The graph below depicts STANLIB activity and presence on the continent, as at 31 December 2013.
• Current physical presence • Markets serviced from other jurisdictions • Potential presence
WESTERN AFRICA
EASTERN AFRICA
South Sudan
First asset manager to manage money in
South Sudan
Uganda
Nigeria
STANLIB was the first asset manager to set
up shop in 2002
Standard Bank made strategic acquisition
of IBTC Chartered Bank
Kenya
Ghana
STANLIB is the first South African manager
to have a physical presence in Ghana
Running the largest unit trust in Kenya
Namiba
Tanzania
Standard Bank current physical presence
Launched the first property unit trust in
Namibia in 2007
Swaziland
AUM of +E4.5 billion and biggest manager
with local presence
Botswana
Currently has the biggest unit trust platform in the country
and running the biggest money market fund in Botswana
South Africa
Largest management company in Africa
4
Lesotho
SOUTHERN AFRICA
STANLIB launched the first unit trust in
Lesotho as part of the Government’s
privatisation initiative
The Four Pillars of Africa’s Growth
Africa is becoming more stable and more democratic
Up to 75% of Africa’s population now lives under stable and increasingly democratic regimes. This represents a huge
turnaround from 30-40 years ago, when the majority of Africa’s population lived under unstable and despotic regimes. This
transformation has not occurred overnight and it is still evolving but it is real nonetheless. South Africa, Nigeria, Kenya and
many smaller countries are now all democracies. There are 17 investable stock markets in Africa and only one of those Zimbabwe - could still be called a dictatorship. The few countries in Africa that remain unstable - such as Somalia - do not have
stock markets.
Number of democratic countries in SSA
20
18
16
14
12
10
8
6
4
2
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Source: DB Research
5
Africa is opening itself up to free trade
Sub-Saharan Africa has been leading the way in trade reforms. The World Bank’s 2013 ‘Doing Business’ Report shows that
between 2006 and 2013 Sub-Saharan Africa introduced more reforms*. Since 1990 Sub-Sahara Africa’s exports to the world’s
emerging markets have risen over 4000%.
Number of Doing Business reforms making it easier to trade across borders by Doing Business report year.
Sub-Saharan Africa
5
Latin America & Caribbean
5
(46 economies)
(33 economies)
Middle East & North Africa
4
(19 economies)
Eastern Europe & Central Asia
(24 economies)
5
3
2
1 3
East Asia & Pacific
4
OECD high income
4
(24 economies)
(31 economies)
6
11
6
4
3
8
4
4
3 2
14
7
6
6
6
4
2
112 2 2
4
6
5
4
2
9
7
2006
6
2007
6
2008
2 1
2009
2010
2 2
2011
11
2012
5
2013
South Asia 1 2 2 1 1 1 1
(8 economies)
0
10
20
30
40
50
60
70
Source: World Bank Doing Business 2013
Exports from Sub-Saharan Africa to Developed and Emerging Markets
5000
3000
2000
Source:
6
Developed Market
2012
2013
2011
2010
2008
2009
2007
2006
2005
2004
2003
2001
2002
1999
Emerging Markets
2000
1997
1998
1995
1996
1993
1994
1991
0
1992
1000
1990
Index, Jan 1990 = 100, Dollars
4000
Africa’s Labour Force - and its Middle Class - Is the Fastest Growing
in the World
The McKinsey Global Institute in 2012 forecast Africa’s labour force will grow by 122 million between 2010 and 2020. China’s
will grow by just 12 million and North America’s by 8 million. Europe and Japan’s will decline. By 2030-40 Africa will be home to
the largest workforce in the world. Of course, a rapidly rising population is of little value if most of it is destined to live below the
poverty line. That is far from being the case in Africa. The African Development Bank’s 2011 Africa Report stated that ‘Africa’s
Middle Class is the fastest growing in the world.’ In 2010 McKinsey reported that ‘regardless of the fact that India has a larger
population than Africa, Africa now has more Middle Class consumers.’ Since 1990, GDP per capita growth in Africa has risen in
line with China and India. Poverty levels have fallen commensurately.
Africa’s labour force to grow by 122 million by 2020 and largest in the world by 2035
Growth of the labour force, 2010-20
Africa
122
India
78
Size of the working-age population (15-64 years
Labour Force
2020
1,200
Africa
India
504
1,000
China
534
800
Latin America
45
316
Southeast Asia
40
331
China
North America
Europe
-4
12
792
8
178
600
400
200
354
Source: Southeast Asia
Latin America
Europe
North America
Japan
2030 2040
0
1970 1980 1990 2000 2010 2020
Source:
Africa’s fixed investment has surged
In order for economic growth to be balanced and sustainable, fixed investment spending must be treated as equally
important as consumer spending. Africa’s fixed investment spending has surged by over 350% since 2000. As a percentage
of GDP, fixed investment spending in key African economies such as Nigeria and Kenya is at least equal to that in China, India
and South East Asia.
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Africa’s Fixed Investment has been Growing Exponentially
250
fixed investment as % GDP
225
200
Up 343%
175
150
125
100
75
50
25
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source:
The Result?
Africa has been the world’s fastest growing continent since 2000. The IMF predicts that between 2015 and 2020, seven out
of the world’s 10 fastest growing economies will be found in Africa. It predicts GDP growth for the region as a whole will be
between 6% and 7% for the foreseeable future.
And Do Not Forget Africa’s Game Changers...
ЉЉ Oil and gas - Africa’s growth since 2000 has been achieved without the help of the immense oil and gas discoveries made
since then. In the last five years, commercially viable oil and gas discoveries have been made in Ghana, Niger, Ethiopia,
Uganda, Kenya, Tanzania and Mozambique. Only a fraction of Africa’s potential energy resources have so far been
commercially explored.
ЉЉ Electricity - Nigeria’s compound 7%+ GDP growth has been achieved with the same electricity output that powers Japan’s
Narita airport. The IMF argues that if Nigeria can reform its electricity production and distribution, annual compound GDP
growth could rise to over 10%. And the picture is changing, with many of Nigeria’s state owned electricity generators and
distributors recently sold to world class international companies.
ЉЉ Agriculture - Africa has 60% of the world’s uncultivated arable land. East Africa alone has a larger acreage of uncultivated
arable land than all the cultivated land of India. Again, the picture is changing, with China, India, Brazil and the Gulf States
competing to lease millions of acres of Africa’s farmland to secure their future food supplies.
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Common Misconceptions About Africa
Africa is Heavily Indebted
Wrong - Africa’s Sovereign debt as a percentage of GDP has been falling steadily. According to IMF statistics, Africa is now the
least indebted region in the world.
African Debt levels as a % of GDP Have Fallen Dramatically
75.00
68.75
62.50
56.25
% of GDP
50.00
43.75
37.50
31.25
25.00
18.75
12.50
2012
2011
2010
2008
2009
2007
2005
2006
2003
2004
2002
2001
2000
1998
1999
1997
1996
1995
1993
1994
1991
1992
1990
6.25
0.00
Source:
Africa Suffers From Endemically High Inflation
While it is true that inflation in Africa is projected at around 8% for 2015 compared to around 6% for Latin America and 4% for
Asia, it is no longer out of line with other global regions and should fall further as the weighting represented by food in Africa’s
inflation basket continues to decline.
African Inflation is No Longer Significantly out of Line with Other Global Regions
14
12
10
8
6
4
2
0
-2
2008
2009
2010
2011
2012
2013
2014
Africa – Latin America –Europe – Asia – North America –
2015
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Africa is In-Efficient, Lacks Transparency and Is Corrupt
As the table below produced by the World Bank shows, Africa scores no worse on these measures than India and South East Asia.
The real problem in Africa is not its culture but its lack of infrastructure.
In a recent World Bank Report, Sub-Saharan Africa was in line with South East Asia with respect to efficiency, transparency and
corruption. Africa’s problems relate to its physical infrastructure, not its culture.
CRG Corruption
(0=High Risk, 6=
Low Risk)
Bangladesh
Transparency
Accountability,
and Integrity
of the Public
Sector (1=Low,
6=High)
Logistics
Performance
Index, Efficiency
of Customs
Clearance
(1=low,5=high)
3.0
3.0
2.3
Road Density
(Kilometers
of road per
100 square
Kilometers land
area, 2007)
N/A
Cost to Export
(U.S dollar per
container)
970
Value to
Electrical
Outages
(Percent of Sales)
N/A
Cambodia
2.0
2.0
2.3
N/A
732
N/A
India
2.0
3.5
2.7
N/A
945
N/A
Indonesia
3.0
N/A
2.4
22.0
704
2.4
Philippines
2.0
N/A
2.7
N/A
816
3.4
Vietnam
3.5
3.0
2.7
48.0
555
3.7
South East Asia
(median)
2.5
3.0
2.6
35.0
774
3.4
Sub-Saharan
Africa
2.3
2.8
2.2
14.5
1.927
6.1
Sources: World Bank, World Development Indicators, International Country Risk Guide and IDA Resources Allocation Index. Road density refers to 2004, and electrical In
the same way that many potential investors have been slow to perceive the positive developments taking place in Africa, so they have been slow to lose some of the more
common negative misconceptions about Africa. Let’s deal with some of these.
Africa Is Too Small to Bother With
In terms of stock market capitalisation this criticism is fair...But the same was said about South East Asia before investors
began to appreciate the region’s superior economic fundamentals and began to invest in its stock markets in the 1980’s.
Africa’s stock markets may still be small as global investors still have to discover them but its economy is not small. By 2020 HS
Global Insight predicts Africa’s GDP will be of the order of $5 trillion - larger than the individual economies of Germany, the UK
and France - and 60% of the size of these economies combined.
Africa Is Too Risky
Africa is perceived by many to be high risk but this statement needs to be qualified. It is true that political risk is greater in Africa
but this can to a considerable degree be reduced by a prudential spread of investments across Africa’s 17 investable markets.
On the other hand, we believe many perceived risks are considerably exaggerated. For instance, the financial statements
of most listed African companies are audited by the major international audit firms and the information contained in them
can be relied on. Nonetheless, it is true that the statements tend to contain less information than would be found in the
reports produced by companies in the developed world, which is why it is essential to have local research teams in Africa
visiting companies on the ground. As for African stock markets, in the global financial crisis of 2008-9 no African stock market
suspended trading and closed its doors for business, in contrast to a number of markets in the Far East. Nor was there any
difficulty in repatriating assets.
From STANLIB’s point of view the greatest risk is the relative illiquidity of the markets. African markets trade daily but volumes
can be exceptionally low by developed or even emerging market standards, which means any investment in African equities.
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The Time is Now
Africa – Largely Ignored by Global Investors but Already Outperforming for 10 Years
Africa accounts for 1% of the world’s stock market capitalisation. STANLIB research indicates only one in two of Europe’s 200
largest pension funds has any direct investment in Africa. However, Africa accounts for 6% of the world’s GDP. Clearly, the
world’s largest investors are not going to remain as under-invested in Africa as they are now. It is anyone’s guess as to when
the world’s investment community will wake up to the opportunity Africa represents. There are sound reasons to believe early
investors will reap the greater rewards. Indeed, Africa’s Frontier Markets have been outperforming the rest of the world for over
10 years already, even though the world’s investment community has largely ignored this. But for how much longer?
10 Years Annualised USD Returns
8.89%
8.52%
4.83%
MSCI World
4.15%
MSCI EM
MSCI FM
MSCI FM Africa
Source: MSCI; Silk Invest
STANLIB Pan-Africa Capabilities
STANLIB offers its clients Pan-African solutions for their Africa investment needs. An advantage of the franchise model is that
it is an enabler for investment diversification for clients through asset class, portfolio manager and investment styles in order
to provide a complimentary solution for its clients’ investment risk and return needs.
Below is a depiction of STANLIB’s Pan-Africa Capabilities:
EQUITY
FIXED INTEREST
LISTED PROPERTY
ALTERNATIVE
ƬƬ Pan-Africa Equity Proposition
ƬƬ Pan-Africa Fixed Interest
Proposition
ƬƬ Listed Property Proposition
ƬƬ Africa Direct Property
Proposition
ƬƬ Infrastructure Investments
Proposition
SEGREGATED MANDATES
STANLIB is able to construct portfolios leveraging our core capabilities in equities, fixed income, property (listed), property (direct),
balanced and country/region specific.
* Jones Lang La Selle
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The Pan-Africa Franchise manages a range of listed equity, fixed income and balanced portfolios. Investors are able to
choose a pooled solution or can structure a segregated mandate with specific regional exclusions or inclusions. The primary
investment objective of the franchise is to achieve medium to long-term capital growth and in the process, outperform the
relevant benchmark.
The Listed Property Franchise has an outstanding track record as a leading listed property manager with a unique offering
across all property markets in the world. The size of our Property Book and our strong ties to STANLIB Direct Property
Investments is a clear competitive advantage, while our affiliation with Standard Bank Properties further strengthens our
influence when it comes to voting, private placements and liquidity. In addition to doing our own analysis and research, the
property team leverages off the greater STANLIB Asset Management team, including the Fixed Income Team, the in-house
economists, and the Equity Research Team, for trends in the retail, construction and financial sectors.
The STANLIB Direct Property Investment Franchise (SDPI) is committed to delivering long-term inflation beating returns to
investors through a quality real estate portfolio. Our investment purpose is making real estate accessible sustainably. These
are our three main focus areas:
Liberty Property Portfolio
Remains a key focus area with a
dedicated investment team to drive
investment returns for policy holders
and match exposure needs.
Pan-Africa Portfolio
Focus dedicated efforts on building
Africa investment opportunities
through creating quality stock in high
growth areas.
Third Party Mandates
Ensure that we stay in touch with
the market to create exposure for
investors to key opportunities and
economically growing nodes.
The Infrastructure Investments Franchise is focussed on creating a platform that will enable a wide range of investors to gain
access to investment opportunities in African Infrastructure. A market traditionally limited to a group of specialist investors
and financial institutions. This initiative has evolved through collaboration between us and Standard Bank. Standard Bank has
long recognised the infrastructure investment opportunity, one of its core African strategies. It established and developed
a highly successful Infrastructure Equity offering and team. The natural progression of this business opportunity, given the
limitations of banking regulations and capital constraints, was to evolve into a standalone asset management business. We
have acquired the Standard Bank Infrastructure Equity Team, its assets and deal pipeline and are now in a position to offer
institutional clients investment opportunities in this exciting new asset class
12
Disclaimer
Information and Content
The information and content of this document are intended to be for information purposes only and STANLIB does not guarantee the suitability or potential value of any
information contained herein. STANLIB Asset Management Limited does not expressly or by implication propose that the products or services offered in this document
are appropriate to the particular investment objectives or needs of any existing or prospective client. Potential investors are advised to seek independent advice from
an authorized financial adviser in this regard. STANLIB Wealth Management Limited is an authorised Financial Services Provider in terms of the Financial Advisory and
Intermediary Services Act 37 of 2002 (Licence No. 26/10/590)
This document does not constitute investment advice, an offer, or the solicitation of an offer for the sale or purchase of any investment or security. This is a factual
communication. If you are in any doubt about the contents of this document or the investment to which this document relates you should consult a person who specialises
in advising on the acquisition of such securities. Whilst every care has been taken in preparing this document, no representation, warranty or undertaking (express or
implied) is given and no responsibility or liability is accepted by the STANLIB Group of Companies, its subsidiaries, holding companies or affiliates as to the accuracy
or completeness of the information contained herein. All opinions and estimates contained in this report may be changed after publication at any time without notice.
Members of the STANLIB Group of Companies, their directors, officers and employees may have a long or short position in currencies or securities mentioned in this report
or related investments, and may add to, dispose of or effect transactions in such currencies, securities or investments for their own account and may perform or seek to
perform advisory or banking services in relation thereto.
No liability is accepted whatsoever for any direct or consequential loss arising from the use of this document. Past performance is no indication of future results. The value
of investments may fluctuate and investors may not get back their original investment. Changes in currency exchange rates may have an adverse effect on the value of your
investment.
Neither this document nor any copy of it nor any statement herein may be taken or transmitted into the United States or distributed, directly or indirectly, in the United
States or to any U.S. person except where those U.S. persons are, or are believed to be, qualified institutions acting in their capacity as holders of fiduciary accounts for the
benefit or account of non U.S. persons. The distribution of this document and the offering, sale and delivery of securities in certain jurisdictions may be restricted by law.
Persons into whose possession this document comes are required by the STANLIB Group of Companies to inform themselves about and to observe any such restrictions.
You are to rely on your own independent appraisal of and investigations into (a) the condition, creditworthiness, affairs, status and nature of any issuer or obligor referred to
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Neither this document nor any copy of it nor any statement herein may be taken or transmitted into the United States or distributed, directly or indirectly, in the United
States or to any U.S. person except where those U.S. persons are, or are believed to be, qualified institutions acting in their capacity as holders of fiduciary accounts for the
benefit or account of non U.S. persons. The distribution of this document and the offering, sale and delivery of securities in certain jurisdictions may be restricted by law.
Persons into whose possession this document comes are required by the STANLIB Group of Companies to inform themselves about and to observe any such restrictions.
You are to rely on your own independent appraisal of and investigations into (a) the condition, creditworthiness, affairs, status and nature of any issuer or obligor referred to
and (b) all other matters and things contemplated by this document
Compliance number: D8R476
13
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Cape Town
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Claremont, Cape Town
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Pretoria
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George
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Port Elizabeth
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Bloemfontein
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Kenya
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Lesotho
Ground Floor, MGC Office Park, Corner Pope John Paul II and
Mpilo Boulevard, Maseru, Lesotho
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Windhoek, Namibia
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Swaziland
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17 Hannington Road, Kampala, Uganda
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T +256 31 222 4634
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