Africa rising, but plenty of ashes, even smoke

Posted on: May 11, 2010 in: Uncategorized with 0 comments

Africa is enjoying a revival these days. High commodity prices and resource-hungry foreign investors are pumping money into countries like Angola, Nigeria, South Africa and Egypt. African firms in mobile telephony, mobile banking and consumer goods are profiting from favored access to a market of 1 billion people. And of course, Kenya has the son-of-its-man in the White House.

The Economist magazine said this in a recent issue:

“After four decades of strife, Angola was a basket case. But the pace of development since peace returned eight years ago has been staggering. The country feels like a gigantic building site, as roads, ports, railways, hotels, shopping centers, hospitals, universities – even whole new towns – rise up out of the bush. The capital, Luanda, has changed out of all recognition, as the dilapidated red-tiled colonial buildings and encroaching slums make way for a forest of elegant high-rise hotels, offices and apartment blocks.”

Africa is a big place and parts of it are afflicted. Congo is the rape capital of the world. A century ago, under the gruesome rule of a Belgian despot, it was the decapitation capital of the world, as Mark Twain wrote about. It seems the horror is still the horror. Then there’s Sudan and Darfur, HIV orphans, and Nigeria’s oil-wealth corruption. But to ignore Africa’s good because of the bad would be like ignoring China because of its neighbor, North Korea.

Speaking of China, over the last decade it has become the biggest direct investor in Africa, both resource and infrastructure projects and Africa is China’s third-largest trading partner. China’s not alone. Brazil, India, Dubai and others are also there. The point is, business is being done in Africa and things are gradually improving. The manager of Mackenzie’s Africa fund, Roelof Horne, says the 2nd half of this century will belong to Africa. Hard to believe but then, Chairman Mao himself could not have predicted China’s future course when he came to power in 1949.

How to Invest in Africa
There aren’t too many choices for actually investing in Africa, especially if you want just a small serving for your portfolio. (Of course, I don’t mean to sound ungrateful – before ETFs there would have been no choice.) There are some country-specific ETFs like EZA for South Africa and EGPT for the land of the Nile. For quasi-pan-African exposure, the two to consider are the SPDR S&P Emerging Middle East & Africa (GAF) and Market Vectors Africa Index ETF (AFK). I say quasi because as you can see from the table below, GAF is 86% South Africa and Israel and AFK, while more African, still represents only a few countries.

I generally prefer ETFs that are cheaper and bigger but in this case, with the objective being to get Africa exposure, I would choose AFK over GAF. I also like its sector mix, as it gives more weight to companies actually doing business in Africa rather than simply extracting resources. Most of GAF’s healthcare weight is Israel’s Teva Pharma.

Attribute Ticker: GAF Ticker: AFK
Underlying Index S&P Mid-East & Africa BMI index Dow Jones Africa Titans 50
# of Holdings 104 50
Assets in the ETF $128 mln $61mln
MER 0.59% 0.83%
Dividend Yield 2.31% 0.73%
2010 YTD Return 2% 8%
2009 Return 50% 35%
Top Five Country Weights
First Country South Africa (62%) South Africa (25%)
Second Country Israel (24%) Egypt (18%)
Third Country Morocco (5.8%) Nigeria (18%)
Fourth Country Egypt (5.5%) UK (12%)
Fifth Country USA (1.5%) Morocco (12%)
Top Four Sector Holdings
First Sector Financials (29%) Financials (42%)
Second Sector Industrial Materials (27%) Industrial Materials (24%)
Third Sector Healthcare (14%) Telecom (16%)
Fourth Sector Telecom (9%) Energy (11%)

Below are some recent articles on business and investing in Africa. You may have to register to view some of them.

Fela Kuti and Afrobeat
But before you get there, let me recommend to you one of Africa’s best treasures – Afrobeat music – a style pioneered by Fela Kuti, a compact Nigerian who exposed corruption and injustice in his powerful, political songs. Fela died a few years ago but he is the subject of a Broadway play and his sons, Femi and Sean Kuti carry on the tradition.

Here’s Sorrows Tears and Blood by Fela from Youtube.

Here’s a concert by Femi from NPR in the US. Enjoy.

Here are the articles:

Rising Angola: Oil, glorious oil.
The Economist

Outsourcing to Africa: The world economy calls
The Economist

Mining in Ghana: Carats and sticks
The Economist

China eyes industrial bases in Africa
Financial Times

China seeks Africa joint ventures
Financial Times

Africa is getting a better deal from Beijing
Financial Times

India’s Bharti awaits green lights for Zain telecom deal
Financial Times

Vodacom Kenya and Nedbank in mobile banking tie-up
Financial Times

Brazil enters fray for African resources
Financial Times

World Bank unit to finance Chinese Africa venture
Financial Times

Brazil’s Vale snaps up concession in Guinea
Financial Times

Investing: Eye on Africa
A conversation with Roelof Horne, manager of Mackenzie’s Africa fund.
The Globe and Mail

Africa: An economic giant that’s ready to wake up
The Globe and Mail

Leave a Reply

Your email address will not be published. Required fields are marked *

site by Carbonated Interactive