Africa ready for another new dawn, says InvestAD report
Global institutional investors intend to make their first significant step into Africa over the next five years, raising their investments sharply from current low levels, according to a report commissioned by fund manager Invest AD and written by the Economist Intelligence Unit (EIU).
Based on a survey of 158 senior executives at institutions such as pension and endowment funds and insurance firms, the report entitled “Into Africa: institutional investor intentions to 2016” found that the world’s major investors are most excited by the continent’s emerging middle class.
The report acknowledges that Africa has “had several false dawns”. During its drive for independence in the 1950s and 1960s, hopes rose for a dynamic new generation of leaders. But those hopes faded in the 1970s and 1980s, for reasons ranging from widespread corruption and despotism, to practical difficulties in realigning national economies. Following Russia’s perestroika and the collapse of South Africa’s Apartheid regime, hopes rose again, only for disappointment to set in as it became apparent that the post-communist “peace dividend” would take longer to pay out in Africa than first expected.
“But the past decade has been, by and large, a good one for the continent,” the report concludes. “Various long-running wars have ended. Multi-party democracy has spread, even though progress remains patchy. Foreign debts and government deficits have been trimmed, and a more competitive landscape for privatised companies has emerged.”
The survey showed just over half of respondents believe Africa will be the most attractive region for investment over the next decade. Almost half said they currently have either no exposure, or less than a one percent allocation to Africa. But by 2016, all those polled intend to have some investment there, with a third expecting to allocate at least five percent of their total funds to the continent.
Two thirds believe Africa will be the most attractive region for investment growth in the next decade, ranking it in the top two ‘frontier’ opportunities (frontier Asia comes second, followed by Latin America, Middle East and Central & Eastern Europe).
“This is extremely good news for Africa, as a strong capital flow should feed a virtual cycle of job creation, income rises, and more investment,” said Nazem Al Kudsi, chief executive of Invest AD. “Institutional investors are recognising an Africa that is better-governed, is less dependent on resource extraction, and is increasingly dominated by middle-class expectations. These frontier economies are rapidly becoming the BRICS of the future.”