Nigeria and Kenya have been tipped as Africa investment destination hotspots in the coming years. According to a research finding by the Economist Intelligence survey, global institutional investors plan to boost their asset allocation in African markets over the next five years, and are shifting to long-term investment strategies from more speculative, short-term bets.
By 2016, however, all the institutional investors polled expect to have some exposure to emerging Africa, with nearly one-third expecting to shift at least 5 per cent of their fund value there. In terms of popularity with investors, Nigeria and Kenya top the list, followed by Zimbabwe, Egypt, Ghana and Libya. Investors eye Africa’s emerging middle class as the most attractive aspect of the continent, which until now has been a largely natural resources play.
According to the report, Africa’s frontier markets — the smallest, less developed and less liquid among emerging economies — will offer the best overall prospects for investment growth in the next decade, said 51 per cent of the 158 investors polled by Invest AD and the Economist Intelligence Unit (EIU).
Two-thirds of investors with an interest in frontier markets see Nigeria or Kenya holding the greatest opportunity, putting the continent ahead of frontier markets in Asia and Latin America, the survey showed. Even among frontier markets investors, most are only just starting to explore African markets, with one in five of those surveyed having zero allocations. Among larger investors with more than $10 billion under management, this is closer to one in three, according to the survey.
“Interestingly, the Invest AD-EIU survey suggests that investors are largely drawn by the same “income convergence” story that has played out in China and India — not the worn, one-dimensional motivation of mineral extraction,” Nazem Fawwaz Al Kudsi, chief executive office at Invest AD, said. Still, institutional investors have several concerns about investing in the continent, according to the report titled “Into Africa: Institutional Investor Intentions to 2016.”
“Africa’s biggest challenge is to overcome deeply entrenched perceptions. But a striking shift that can be observed among investors is a change in focus from macroeconomic and political worries towards more technical market concerns,” according to the report. Although bribery and corruption is the headline worry for investors, concerns about weak institutions and illiquidity in capital markets are not far behind.
