The institutional investors roadmap to investing in Africa

Market participants gave their views on some of the core issues facing investors in frontier economies across Africa at Fund Forum Africa. But what were they?
By Charles Gubert
Market experts broadly agree that Africa provides a number of opportunities for institutional investors. However, better investor education about African markets is required, and clearer explanations of the risks need to be provided.

Richard Jablonowski, chief investment officer at Emirates NBD, said investors should recognise that each individual market in Africa is different, and not bunch them together. Numerous investors are interested in the high yields on offer through investing into individual African countries’ bonds. Again, this has its risks.

Investors need to be mindful of the risks of investing into some of these countries’ bonds. Due diligence on these markets is important. Markets such as South Africa are relatively liquid but some of the smaller countries are quite illiquid. Many investors do scrutinise this, carefully assessing the underlying liquidity of their African bond exposures to ensure they can manage redemptions should they arise. Several markets have imposed capital controls. Nigeria, for example, has had capital controls in place to prevent further Naira shocks following the dramatic fall in oil prices. Getting currency out of some countries can be problematic.

Given the illiquidity of many of these markets, firms are constrained in what they can invest in. One expert said firms that wanted liquidity should invest in industries which had critical mass on the continent, such as financials and telecommunications. Paul Forsyth, managing partner at Apache Partners, highlighted a growing number of Africa-focused fund managers were eschewing the traditional offshore jurisdictions of Cayman Islands and Bermuda, and setting up Africa-focused UCITS out of Luxembourg or Ireland. However, some believe that investing through UCITS structures in Africa is too restrictive as the selection of eligible underlying assets is limited.

Brexit does not appear to have had a material impact on African markets, although the vote is likely to result in a swathe of new treaties being negotiated between the UK and various African markets.