11.10.2011

Peter Leger

Portfolio Manager

Coronation Asset Management (Pty) Ltd., South Africa

With rapidly-growing foreign investment, abundant commodity reserves, a fast-improving economic climate and fundamental infrastructural changes being made, Africa is a continent investors cannot afford to ignore. The WIOF African Performance Fund gives investors access to a wealth of investment opportunities in a leading growth region with a strong future.

 

IMPROVING ENVIRONMENT

Africa has in the past often been perceived as a continent plagued by poverty, famine, war, lawlessness and insurmountable infrastructure problems. But while parts of the continent do face challenges, the broader picture is increasingly positive.

Some simple basic statistics about Africa underline its enormous potential:

  • Africa has 13% of the world’s population
  • It is bigger than the USA, China, Europe, India and Argentina combined, making up 20% of the world’s land mass
  • It has 12% of the world’s farming land
  • It holds over 30% of the world’s mineral/mining resources

Alongside these encouraging fundamentals, positive demographic and macroeconomic developments, such as an improving inflation climate, are being seen in a significant number of African states. Meanwhile, government and private sector debt levels are also relatively low.

 

 

INVESTMENT DESTINATION

The positive growth outlook and continuously improving macro environment have been noticed by foreign investors and a raft of major investments have already taken place or are planned. Among the largest investments have been those from the world’s established and rising economic superpowers.

USA and Europe

For example, the US retail giant Walmart has recently had a USD2.4bn bid approved for local discount retailer Massmart, which has 288 stores in South Africa and a dozen other African countries. US and European oil companies – Chevron Corporation, Elf Oil, Texaco, ExxonMobil, Agip, Petrobras, and British Petroleum all have operations in various countries across the continent.

Asia – India and China

Companies from the two rising Asian world economic giants, India and China, are also investing. Trade volumes between South Africa and India doubled from 2007 to 2010, with India becoming South Africa’s sixth-largest destination for exports and its ninth-largest source for imports. Out of all of the Chinese companies that invested abroad in 2010, 22% invested in Africa, according to official Chinese figures. Major Chinese companies are investing, mainly in infrastructure and resources projects.  Meanwhile, Chinese demand for raw materials has climbed by a reported 600% in less than a decade and the number of Chinese mining investments in Africa has risen from six in 2003 to more than 40 in 2010.

 

 

EXPECTED TO RISE

Investment is expected to continue at a healthy rate. A survey by Ernst & Young of 562 global executives released earlier this year showed that they expect new projects in Africa will enjoy strong growth from next year, with inflows of foreign direct investment forecast to reach USD150bn by 2015. The survey also showed that when it comes to investment strategies, Africa is high on the agenda of global investors, with 42% of the businesses surveyed considering investing further in the region and an additional 19% of executives confirming they will maintain their operations on the continent.

 

OUTLOOK

Africa’s development in recent years in terms of its economy and markets make the continent’s long-term prospects encouraging. Returns in recent years have proved to be solid and massive liquidity injections and financial support provided by western governments has stabilised the world’s financial system to an extent. However, the health of government finances in the West is beginning to appear very poor and withdrawing the stimulus provided in recent years is likely to prove a tricky affair. Global economic events and development will continue to affect the continent. But Africa’s underlying themes continue to promote confidence: there is a wealth of investment opportunities, sustainable growth, a dramatically improving investment climate, an increasing investor base and a significant upside from current valuations. In the absence of any major negative global economic events, macroeconomic developments should help to drive long-term growth potential in the region.

 

INVESTMENT MANAGER


The Fund’s investment manager is Coronation Asset Management (Pty) Ltd., South Africa (Coronation AM), one of the largest asset managers in South Africa and boasting a strong international presence. Founded in 1993, the company‘s headquarters are in Cape Town, South Africa while it also has offices in the United Kingdom, Botswana and Namibia.

 

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