Emerging Africa: The Evolving Investment Landscape

Sub-Saharan Africa offers significant economic growth potential on the world stage. In the short to medium term, the International Monetary Fund (IMF) projects regional GDP growth to rise to 4.0% in 2025. Longer-term forecasts also look promising, with Oxford Economics forecasting an annual average growth rate of 2.9% between now and 2050.

Africa’s Macroeconomic Potential: Population and Natural Resource Growth

Part of the lift stems from simple demographics. The United Nations sees Africa’s population reaching 2.5 billion by 2050. Natural resources also play a significant part, with the African Development Bank estimating $6.5 trillion worth of commodities and 65% of the world’s uncultivated arable land.

However, unlocking the sub-Saharan investment opportunity also comes with numerous challenges. As the IMF argues, public finances are often squeezed. Inflation and high borrowing costs create constraints in accessing debt capital markets. The continent would benefit from a wider range of funding sources and more economic diversity.

The Opportunity for South African Managers

Sub-Saharan Africa’s many nuances create an advantage for investment managers based in South Africa with its highly developed financial markets. Anecdotally, Enfusion clients based in South Africa are continuing to express interest in finding investable opportunities, especially in alternative investments such as infrastructure and private credit. South Africa’s investment managers are well positioned to have the proximity and regional relationships to find potential investments. Over the past five years, allocations outside South Africa have increased from roughly a quarter to over a third.

The Sub-Saharan Market Landscape

Accessing African investment opportunities typically involves a range of asset classes. Nigeria, Botswana, Namibia, West Africa, Kenya, Mauritius, and Ghana have sizable securities exchanges with a total market cap under US$200 billion.

These markets have been under significant performance pressure in the past decade, however. As reported in the Financial Times, the Kenyan market has fallen 12%, the Nigerian market 89%, with the larger South African index returning a positive 7%.

Private debt, commodities, infrastructure, and other real assets also offer many attractive opportunities.

Considerations for South Africa’s Investment Managers

As I discussed in a recent HedgeNews Africa article, favorable adjustments to South Africa’s regulatory environment, such as Regulation 28 of the Pensions Act, have continued to help investment managers capitalize on alternative and international strategies. The trend taps into investor demand for diversified investments across Africa and beyond, showing openness to allocations to alternative and offshore assets.

In addition, investment managers must be mindful of the practical, operational implications of managing a complex investment portfolio that spans markets and asset classes. Investors also often need to hedge against currency risk or engage in financial planning to mitigate these challenges. As a result, they need a robust investment management platform designed to handle the nuances of emerging market investment from front to back office.

Conclusion

Sub-Saharan Africa presents a unique investment landscape characterized by its vast natural resources, burgeoning population, and evolving economic potential. While regulatory complexities, currency volatility, and limited market infrastructure persist, the region's growth trajectory offers significant opportunities, particularly in private debt, commodities, infrastructure, and real estate. 

South Africa-based investment managers are uniquely positioned to capitalize on these opportunities due to their proximity, deep regional knowledge, and advanced financial infrastructure. As the region continues to evolve, the need for sophisticated investment strategies that navigate both the opportunities and risks will be critical in unlocking sustainable growth.