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How to invest in Africa

how-to-invest-in-Africa

After China and India, international investors consider Africa as one of their most potential destinations.




Though frequent changes of regimes, wars and chaos prevented economic development of Africa, international investors are now thinking seriously on how to invest in Africa and have started identifying the best places for investments in Africa and are considering various other factors that are crucial in the investor’s point of view. The population of Africa is around one billion. Africa has plenty of natural resources.

The three regions

Many African countries have gained popularity at the international level. With its flourishing mining industry, South Africa is already a business hub and Northern Africa is well known for its oil reserves as well as many large industries.

For the investors, South Africa is the prime destination today. South Africa has the unique distinction as the world’s largest producer of gold, platinum and chromium.

The North African countries Egypt, Morocco, Algeria, Tunisia, Mauritania, Libya and Western Sahara are rich in crude-oil reserves.

Libya has the maximum oil reserves among all these countries and already various multinational companies are stake holders of the oil reserves in Libya. The business operations are at times affected by political instability.

The Sub-Sahara region of Africa has two regional stock exchanges and about 29 stock exchanges which are representing about 38 countries. Mutual Funds and Exchange-Traded Funds in Sub-Sahara are ideal investment options for small investors.

ETFs and MFs – the easiest investment options

The ETFs (Exchange – Traded Funds) and MFs (Mutual Funds) of Africa are traded on the stock exchanges in the US and all these funds have diversification options within them. When compared to the various foreign stocks that are traded in foreign stock exchanges and also the American Depository Receipts (ADRs), the MFs and ETFs in Africa cost much less.

The best ETFs to invest in Africa

Here is a list showing the best 5 ETFs for making investments in Africa.

  1. Middle East Dividend ETF
  2. SPDR S&P Middle East & Africa ETF
  3. Frontier Markets ETF
  4. Market Vectors Africa Index ETF
  5. MENA Frontier Countries Portfolio

 

Now, let us see the ways on how to invest in Africa. The SPDR S&P Middle East and Africa ETF are comparatively more diversified since they have exposure to not less than 80% of Africa.

In South Africa the MSCI South Africa Index Fund is the best investment option. As far as the other parts of Africa are concerned, only a few options are there for investors. They can invest either in the Middle East Dividend ETF as well as the Frontier Markets ETF or in commodity ETFs which are for copper, gold, etc.

In view of the availability of natural resources in plenty in Africa, the commodity ETFs are indeed great options for investments in Africa.

The Pros and Cons

In fact, Africa is the best market in the world for Foreign Direct Investment. UNCTAD had reported that at global level, FDIs get the highest return from Africa.

However apart from the advantages, there are risks also in making investments in Africa.

Advantages

  • Enormous natural resources including oil, gold, diamond and uranium
  • A potential market for consumer goods, banking services and telecom services since Africa has 14.5% of world’s total population
  • Africa is undeveloped and the growing population is getting wealthier so that growth opportunities are vast

Disadvantages

  • Civil wars, regional conflicts and regime changes create uncertainty
  • Corruption and lack of policy of governments make business activities difficult as well as risky
  • Lack of infrastructure

 

Conclusion

Africa is no more a “Hopeless Continent”, but it is a “Rising Continent”. Africa is identified as one of the most ideal locations for investors who are interested to invest in emerging markets. Today Africa is a compelling market for international investors. Those who invest in ETFs and MFs of Africa can easily penetrate into the various economies in Africa more quickly.

We hope you enjoy our guide on how to invest in Africa. If you have any suggestion or question regarding on tge question how to invest in Africa, feel free to drop a comment below.

Afronism Team

Afronism Team

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