How to invest in Africa

In response to Africans to Bono: 'For God's Sake Please Stop!' I received several emails asking about how to invest in Africa.  I'm a writer and a wannabe political scientist, which doesn't exactly qualify me to provide an answer.

So here is what I propose.  Let's discuss here the following questions (and feel free to add your own):

• Why are so many reticent to invest in Africa?
• Where does the perception of the potential risks (corruption, embezzlement, etc.) reflect or diverge from the reality?
• What are the best industries or countries to invest in?  Lowest risk?  Highest return?
• Help!  I'm have a little bit of money and I want to invest in Africa.  What do I do, how do I get started?  Offer your own investment success stories and advice to first-time investors
• Some probably don't have the capital or interest to invest directly, but there are organizations that offer grants or microloans to small businesses in Africa.  What are some examples of these?
• At the conference there were a few attendees who are starting private equity funds in Africa.  For which market?  What is the status of initiatives?

Then please add as many links as you can pointing to specific companies or organizations that can help people invest in Africa.  Or suggest links to MSM articles or your own blog posts which have addressed this issue in the past.

I am going to invite as many people as I can from the TED community who are knowledgeable about investment to participate. Please forward this post widely within your own networks.

Also, for starters you should definitely check out the 2nd Edition of Africa Enterprising Blog Carnival for  entries on trade v. aid, entrepreneurship and business & investment in Africa by  African and Afrophile bloggers.

Once we've gotten this discussion going, I will try, as one reader suggested, to write an article of publishable quality about how to invest in Africa, drawing upon the wisdom of others.  I will also try and compile the information provided here into a kind of investment guide which I might then be placed on a wiki so that people can keep contributing and spread the advice widely.  So talk first, then wiki.

Thank you again for your input.  There is untapped interest in investing in Africa out there.  Let's see how we can harness it.

*  *  *

From my inbox:

I think a useful follow-up article would also tell people how to invest in
Africa. I would love to invest my pitiful life savings into a Nigerian index
fund (Nigerian, because I've been I regularly visit OAU in Ife, so I have some
personal knowledge of the economy and situation there).

Unfortunately, it is very hard to do that. How can I find credible brokers in
Africa, who will invest my money, rather than embezzling it? How can I monitor
and control my investment? The closest that I found are broad index funds that
invest in the developing world, although I presume this is primarily Asia.

If you were to write an article that covers the basics of how to go about
investing in Africa, I think that might be valuable to people.

PM from Massachusetts

 

*   *   *

Do you know of any American firms that specialize in investment in Africa?  I ask because one of the difficulties in doing foreign investment (if you're not familiar with the region) is in verifying the legitimacy of the target investment. It's difficult enough to verify legitimacy & measure risk even if you know the country and the industry you're investing in!  Having a trusted, legitimate native firm that can act as a type of 'regional translator' and in-country prospector would make investment in Africa realistic.

If you have any information on firms like that, I'd be grateful if you passed it on. I'm interested in that kind of investing and I know a few other people locally that would be as well.

Thank you,

SK from California

*  * *

Let me also share with you an old story:

 

When I was in Sierra Leone, I met this really interesting Australian man who had spent his entire career in the police force and retired at 55 with some savings and a sizeable pension.  At night he had taken every business course at the Police Academy, and decided to spend his retirement as a capitalist of sorts.  Over the years, he's started more than half a dozen businesses in Southeast Asia and Africa.  In Sierra Leone, where I met him, he was in the process of starting a fishery.

In every country he goes, he hires only local people.  Once his business is profitable and stable he gets bored and moves onto the next venture, but not before he sells back his business to the people he had hired, trained, and to whom he imparted all of his knowledge and experience.  He got a tremendous amount of satisfaction knowing that in every place he went, he had given anywhere from six to twenty families the ability to secure their livelihoods by, quite literally, teaching a man to fish. 

This simple man without a college degree did more for Sierra Leone than any of the Ivy-league educated aid workers I met by simply having the interest, inclination and willingness to take a chance on a struggling country.  And he's making money to boot.

 

Comments

[Emeka Okafor]

There are an increasing number of platforms for tapping into Africa from an investment perspective. Some of them can be found here , here,here with related information here as well

[Ken Deutsch]

One approach to invest in Africa is to invest in African NGO’s. While trade is clearly where the long-term focus should be, short-term aid can be delivered in a way that also supports African centric development.

Direct Change provides African NGO’s with access to the US donor market through providing a tax-deductible way for Americans to support African directed charities and through providing supporters with tools to run their own online fundraising campaigns.

http://www.directchange.org

[Eric]

Several people I know have used kiva.org to give personal micro-loans to entrepreneurs in the developing world. They don't have a huge number of African opportunities, but there are some available.

It's not investment in the large-scale sense, but in some ways it's more like the Australian guy in Sierra Leone described in the post.

[Chikwe]

I think we should think of investments in terms wider than dollars and cents...i.e "investing" in the human capital. Our "saviours" are on the continent ...without the latitude to think and solve...many are locked in a battle for the next meal. Which is why the story of the retired Australian ploice man in Sierra Leone is so intriguing. We Africans need to take the bull by its horns (those that have not) spend our expertise in ventures that add knowledge and economic growth. If we can find a good mix of both to add in a venture....then leave the venture, make a buck in the process and get a few colleagues "fishing" themselves...

[bankelele]

I'd say invest in South Africa mining - low risk and probably low return.

Kenya is what I am familiar with so I'd recommend ICDCI a diversified investment company, listed at the Naiorbi stock exchange with interests in Amercian companies here like the local General motors and coca cola franchies, as well as other listed companies and even the revived railways.

[Jennifer Brea]

Ryan Shen-Hoover sent me an email about a new newsletter he has started called Investing in Africa. He offers profiles of companies with data on their past performance, risks, future developments, etc. It is a subscription service, but if you go their website, you can register to request a free sample newsletter.

There should be more efforts like this so kudos to Ryan.

Also check out his blog on investing in Africa.

[Alex]

I found a couple of ETFs (exchange traded funds): iShares South Africa, and SPDR Middle East and Africa. I have no opinion if this is a good investment or not, but it's an easy way for anybody to invest, and iShares and SPDRs are well-known and reputable. The down side is that you only get South Africa for one, or South Africa and Nigeria for the other (plus several Middle Eastern countries).

[Mike O]

Lack of adequate infrastructure is still a major issue, especially roads and power.

I am looking a doing a small investment as follows: I have been supporting a girl in Uganda and she is getting ready to head to college. An exceptionally good and polite driver I know over is looking to have his own taxi (14 passenger van). I finance his purchase (maybe $15K total); his payments go into an account for my girls college and other charity work I do there. The interest rate I'll get will be better than any rate I can get in the States and still far less than anything my driver could get elsewhere, and the loan is secure both legally and through a number of contacts I have locally. My only hold up at the moment is convincing the family finance manager (the wife :)) that this is a good use for the small amount of high-risk investment we currently already do.

China's model is correct here; continual dependency on aid will suck the life out of the people.

[Heber Brown, III]

This is a valuable resource. Thank you so much for posting and thanks to all who have provided guidance on this topic. Just over this past weekend, I watched a television program entitled "Africa: Open for Business". It highlighted a number of entrepreneurs and businesses on the continent and it was then that I decided to give serious thought to supporting African businesses. Thanks again.

[Jennifer Brea]

Courtesy of David McQueen:

on the cost of capital in Africa

Liquid Africa

[Ugo Okafor]

I think investing in Local African Stock Markets as I and some of my friends do is a good starting point. Quite a few stock markets in Africa have proven in the last couple of years to make higher returns than in Western markets.

[Ugo Okafor]

I think investing in Local African Stock Markets as I and some of my friends do is a good starting point. Quite a few stock markets in Africa have proven in the last couple of years to make higher returns than in Western markets.

[mike c]

hey everyone,

I am half from Madagascar, one of the poorest countries in the world, but have had the good fortune to have grown up in a middle class family in Canada. Having gone back there (Madagascar) for the second time to see my family, I was struck by how utterly destitute the country was. That isn't to say that things aren't looking up, but with an average yearly income of around $210 dollars, i'm sure you can understand my pain at seeing the differences between their lives and ours.

That experience has changed my life and now I am in the middle of making plans and finding the start up capital to go back and introduce sustainable enterprises. There is so much to do that it is hard to find the 'best' thing to introduce. However, if anybody here at all is interested in making a connection with me and those people, and helping out a genuinely positive and budding entrepreneur, I would be thankful for any help that I can get.

Otherwise, any information would be great too. If anyone here knows of ways to get loans or even grants, please share the knowledge. I am going to go back there regardless of what happens but I'm very conscious of taking the right steps and making things as conducive to success as possible.

Thank you everyone.

MC

[Jeremy]

Greetings and blessings!
My family and I have been working as Christian missionaries in Tanzania, East Africa for the past five years (3 months per year, and self-funded through our own meager businesses).
Tanzania is the richest country in Africa in natural resources, but also among the 10 poorest countries in the world. You should see their mineral, agricultural, and tourism resources! I call it a locked treasure chest.
We have found that the best way to empower Tanzanians is to "teach them to fish". I teach numerous microenterprise seminars which primarily encourage people to be visionary and to utilize their God-given talents and skills, to help them create a buisiness plan, and foster their ideas into reality. Thousands of people have attended these seminars. We have evidence of success among many people who have launched out and are doing very well.
The dilemna that most of them face is the lack of start-up capital. My dream is to build a small microfinance bank that gives loans to people with business plans in the order of $20 - $500+ each. However, we lack the ability ourselves to finance such a venture, but are not lacking in vision and zeal. We are looking for investors and partners who have a heart for such a project. There are many opportunities for investment in mining, timber, agriculture, and tourism.
Our "tentmanking" business that helps to fund our travel is www.wildkingdomsafaris.com.

I'd love to hear from you. Jeremy

[Benin]

Jen:

I agree, investing in African stock exchanges is a great starting point. If you look at Nigeria, Malawi, Ghana, Tanzania-Kenya-Uganda (they are forming a single exchange for the East African region)Plus the some of those in the northern and southernmost regions you may find some which historically have returned high double and low triple digit returns.

I think another way to invest-and something that is probably more palatable to smaller investors or those who are more risk averse is to form an investment club. They use a concept which almost mirrors mutual funds-the idea is that with several small investors each pooling together small funds (and re-investing the earnings), research, and time-they can outpace their single efforts. But it takes a dedicated group-a great example of this is called the Ghana Investment Club (it is closed to non-citizens though, but is provided here as an example) and may be visited through this link http://gicghana.com/

There are many other such groups, most cater specifically to a specific Diaspora group like Ghanaians in America, Kenyans in the States, Nigerians in the UK, and etc. but if you find a good one and they are more closed to investors from other nations you might be able to make a strong case and be accepted in or at the very least get some very concrete info and ideas which could assist you in starting your own club.

[Duva]

I would advise all to check out the following websites for tips on business opportunities in Africa, and business and financial news from the continent. I particularly find the UK-based magazine Africa Investor to be a great resource for economic and business news and ideas from Africa. Pick it up or subscribe online. It can be found at various newstands worldwide, particularly in South Africa. they also publish the in-flight magazine for Nigeria's Aero Contractors. The related www.africaplc.com is another good resource.

http://www.africa-investor.com/

[Idda Romore]

I am Tanzanian lady; holding M.A and consultant; would like to invite a business partnership relation into any company that show interest to invest in Tanzania;

[Ogidi Moses]

This is a very good website. I've just discovered it. I will find time to make some positive contribution on the topic of investment soon.

Thank you for your good work.

[Matt Mille]

This is a very good site for those who have passion for Africa, I believe microfinance is the only solution to the African poverty.I am of African descent (Tanzania) currently living in U.S but help organising microfinace loans to qualified local businesses in Tanzania.If anyone here is doing the same, or can contribute, or wants more info on how to invest in Africa, Govt taxes, import tarriffs, regulations, thriving industries for foreign investors,locations with better infrastructure, or Govt incentives for first-time investors, i can be reached at mille@att.net

[Annemieke]

I think this is such a great topic! I recently wrote a blog on it also...

http://beautyintheunseen.blogspot.com/2007/10/investing-in-sunny-continent-of-africa.html

Check it out if you're interested.

[Raoul Ouedraogo]

Hello there,
I am a master's student at Michigan State University and I just visited My country Burkina Faso after 5 years of absence. It was a shock to see the level of poverty and unemployment (We are second to the poorest country in the world). I am interested in starting small businesses and I was wondering if you would happen to have any suggestions.

Thank you

[Raoul Ouedraogo]

Hello there,
I am a master's student at Michigan State University and I just visited My country Burkina Faso after 5 years of absence. It was a shock to see the level of poverty and unemployment (We are second to the poorest country in the world). I am interested in starting small businesses and I was wondering if you would happen to have any suggestions.

Thank you

[Harry James]

These topics are indeed very interesting. Further to Jennifer's comment regarding ETF's, a company called Scipion Capital recently launched a fund that tracks the Ai40 Index. The comment posted above by Bennin makes reference to this, as the index was designed by Africa Investor. It covers the 40 largest, most liquid stocks across africa, with no more than seven companies from any one country. This consequently limits the number of SA listed companies that would otherwise dominate the index.

Scipion Capital provide a single platform, through which to gain exposure to 8 different stock exchanges on the continent. Also, because the fund is passively managed one avoids expensive performance fee's. There are requirements regarding minimum Investment amount. They also provide a give back to microfinance schemes. Have a look at there website.
www.scipion-capital.com

Rgds,

James

[Adam]

There is the T. Rowe Price Africa and Middle East Fund (http://www.troweprice.com/fundbook/snapshot/0,,ticker=TRAMX,00.html).

It opened just last fall. $2,500 minimum investment. No load charge in or out. Non-diversified status (high risk seeking high reward).

This is much more middle east than africa at the moment:
U.A.E. (United Arab Emirates) 29.4%
Egypt 19.1%
Qatar 16.6%
Oman 12.1%
South Africa 9.4%
Bahrain 2.4%
Jordan 2.1%
Lebanon 1.9%
Nigeria 1.4%

TRP definitely has experience and reputation.

[Adam]

James,

Looks like Scipion's minimum investment is $500,000.