With the mining and oil industries’ under pressure as commodity prices fall to record lows, investors have to look to other prospects on the African continent. The rhetoric that a disproportionate amount of the world’s mineral resources lies on our shores, waiting to be extracted, is no longer a compelling investment case.
The need for infrastructure on the continent is obvious. Ports, electricity capacity and transportation are all necessary to ensure growth. Meanwhile, the World Bank estimates that while sub-Saharan Africa needs infrastructure investment of nearly $100 billion annually, it currently gets less than half of that.
It makes sense to assume then, that the best businesses to be in are directly or indirectly related to servicing this need.
Raoul Gamsu, CEO of Consolidated Infrastructure Group (CIG), says his company made strides into Africa when it realised there was a complete supply/demand mismatch in terms of infrastructure. The JSE-listed company now has an order book outside South Africa of about $100 million.
“For every dollar spent on generation, you need 20 cents for transmission and distribution. So it was an avenue to target. And that’s how we increased our presence on the continent.”
A significant portion of government spending in Africa is geared towards the building of roads, railways, homes and other buildings like schools and hospitals. That is why the construction sector and industries that support those activities are bound to be in high demand. Cement is one example. Old Mutual Investment Group’s African Equities Manager Cavan Osborne says Lafarge, South Africa’s PPC and Nigeria’s Dangote are all cement companies that have a strong footprint on the continent and are investment options worth considering.
“Everyone in the world wants to have a house, and if they already have one they want a nicer or a bigger one. That’s what makes cement such an attractive prospect.”
Similarly, JSE-listed Onelogix is a company that has managed to exploit the need for efficient logistics services in the construction and infrastructure build market, transporting cars and capital equipment needed by companies carrying out big projects.
Also, as the various economies start to grow, more people will have money and will need bank accounts through which to be paid and save their money. Osborne says this is especially true in Egypt, for example, where only 8% of the population have bank accounts.
“Some of the markets on the continent have many banks operating there. Unlike South Africa, where there are only four or five players. But there is certainly a gap, not so much from a corporate financing side of things, but rather when it comes to consumer banking.”
Penetration of cell phones and telecommunications in general is very high in South Africa, but there are many regions that are still extremely under-serviced and this has been clear in the success of MTN’s foray into the continent. Osborne says the combination of banking and mobile services is another gaping opportunity with M-Pesa, a transformative mobile phone-based platform for money transfer and financial services, having taken the Kenyan economy by storm.
Craig Chambers, Old Mutual Investment Group’s Director of Strategic Projects, says agriculture has emerged as a viable asset class especially in the low growth and low interest rate environment seen globally.
“South African farmland has yielded 22.1% over 15 years (to end December 2013) compared to the FTSE/JSE Index (18.2%) over the same period. It has also yielded consistently higher return than international equity (MSCI World), local bond (ALBI BEASSA) and local real estate (IPD) indices over the medium to long term,” he explains.
It seems to be an industry with potential, as Oneligix CEO Ian Lourens attests: “When we started out, I didn’t think about the business of moving fruit and vegetables, but it’s a huge market. If you think about the potentiation in Africa for agriculture, it’s unbelievable. I am told that 60% of the world’s uncultivated land is in Africa, and that the GDP contributions of farming in sub-Saharan Africa can triple in the next ten years. Agriculture is a massive opportunity.”
Meanwhile agricultural production also buoyed growth, particularly in Zambia where, according to the World Bank’s Global Economic Prospects 2015 report, a record maize harvest in Zambia more than offset the decline in copper production last year.
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