Diverse insights into Africa

With our diverse client base and strong African roots, RisCura has a well-placed view on investment in Africa. Bright Africa is our research resource that seeks to answer key investor questions by providing insight into the drivers, enablers and managers of investment on the continent.

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Investment in Africa

Investors consider regional opportunities. It has become important to not only analyse Africa, but to consider how its different regions measure up to their global counterparts.

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Segmenting Africa into meaningful markets

RisCura has identified meaningful regions in Africa by analysing synergies, attractions, flaws, cultural differences and business practices.

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How Africa's regions compare

Investor interest is reinforced for high growth-rate regions like the Maghreb, East Africa, Ghana and Francophone West Africa.

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Africa's links to the globe

East Asia and Western Europe remain the continent’s most significant import region; with China being the top import partner for machinery, electronics, vehicles, mineral fuels and cereal.

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Inter-Africa connectivity

The cost of moving goods domestically can also be up to five times higher in Africa than in the US, but the African Continental Free Trade Agreement seeks to tackle challenges facing trade within Africa.

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Currency risk – Exchange rate regimes

Most African countries have a pegged exchange rate regime, with conventional pegs being the most popular.

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Currency risk – The Milk Index

The Milk index infers price levels across the markets, seeking to identify under and overvalued currencies against the US dollar.

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Sources of capital on the continent

This section highlights and analyses the main institutional investors on the continent, including the sources of capital and the size and depth of these various pools of capital.

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Pension systems

In line with global trends, most retirement income in Africa is funded by its governments, but pension coverage on the continent remains low compared to the rest of the world.

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Insurance assets under management in Africa

The African insurance industry is largely underdeveloped when comparing it to the rest of the world, with its gross premiums written (GPW) accounting for 1.56% of global GPW.

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Development finance institutions

Development finance is critical to meeting Africa’s needs, and a slowdown in the global economy is making it increasingly difficult for the continent to access international financial markets.

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Banks

Africa’s considerable economic and demographic variations have translated into vastly different banking sectors per country.

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Listed equity

The liquidity of Africa’s exchanges took a significant knock in 2019 and the cost trading on its stock exchanges is significantly higher than developed markets.

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Africa’s stock exchanges

Apart from the Stock Exchange of Mauritius (MUSE) that experienced a 57% increase in daily turnover, all other exchanges saw a decline in their daily turnovers for 2019 when compared to 2018.

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Private Equity

This research aims to highlight the current state of the private equity market in Africa, and trends in prices paid for private equity assests over time.

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How does Africa fair in tough times

Insights on the current state of the private equity market in Africa and trends in pricing over time

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Fundraising over time

Before the significant market contraction in early 2020, private equity fundraising activity across Africa continued to show strong growth in the 2019 calendar year.

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Investment activity over time

Fundraising represents the supply of capital available from private equity funds for investment. The extent to which an equal supply of investable opportunities exists is not directly observable.

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Cost of equity

Along with changes in the supply of capital and investable opportunities, another factor that influences the prices at which asset change hands is the perceived risk and rewards of a particular investment.

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Pricing in Africa

Many of the drivers of price changes are unobservable, so it is often difficult to interpret changes over time.

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Conclusion

When looking at the prices for private equity assets in South Africa and Africa and the landscape that influences it, we can see market fundamentals reflected.

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Sovereign Bonds

African Eurodollar and local currency sovereign bonds, bills and notes had a total value of around USD 0.5trn as at July 2019.

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Size of the Universe

The total value of the debt outstanding is concentrated in five countries, making up 81% of the total bonds outstanding

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Holders of Sovereign bonds

The analysis covers the two countries with the largest sovereign debt balances. In both countries, local investors exceed foreign investors.

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Infrastructure

The AFDB estimates around USD 35-47bn is needed annually in Africa to spend on road, rail, air and port infrastructure, with most (80%) allocated to maintenance & rehabilitation of existing infrastructure, which has become outdated and inefficient. Globally, investors allocated a record high of USD 85bn to Africa’s infrastructure funds in 2018, and the positive momentum is expected to continue.

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Financing

Africa will have to overcome challenges to gain more private sector investment to meet its infrastructure development funding deficit.

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Structure

Alternative structures and avenues are opening, allowing investors to access this asset class more readily.

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Road

Several road infrastructure development projects are in progress in West Africa and East Africa that could set a precedent for other projects on the continent.

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Rail

Southern Africa still has the continent’s largest rail network, but East Africa and West Africa have substantial rail expansion projects on the go that could see rail connectivity increase, linking several countries.

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Energy

Although conventional thermal power makes up the bulk of capacity in South and North Africa, there is good potential for growth in the use of renewable energy on the continent.

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Ports

Despite the majority of all African trade being through imports and exports at its largest regional ports, the continent’s ports handle only 6% of global water borne traffic and only 3% of global container traffic (Source: World Atlas).

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Real Estate

Even though many international companies have looked to expand into Africa in the last decade, the uptake of physical office and retail space is slower than expected.

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Office Space

The property market has long received attention from Africa’s institutional investors, especially in countries with relatively small and under-developed capital markets.

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Retail space

New developments in the retail sector over the past ten years have increased the supply of A-grade shopping centres and contributed to increased rental rates in local currency over this time.

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