15.08.2012

André Roux

Portfolio Manager

Sanlam Investment Management (Pty) Ltd


With rapidly-growing foreign investment, abundant commodity reserves, a fast-improving economic climate and fundamental infrastructure 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 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.

 

And more specific indicators show how far the continent’s economies have developed in just over a decade:

  • Africa’s economy has grown by 5% per year for the last 15 years.
  • Average annual trade between Africa and the rest of the world has increased 200% since 2000.
  • Foreign direct investment (FDI) projects have more than doubled in the last decade.

 

The business environment is also improving as countries implement economic and capital market reforms. Over the last five years 13 African countries have been included in the World Bank’s Top 10 business reformers. And of the 30 economies which have improved their business regulatory environment the most over the past five years, one third are in sub-Saharan Africa, according to the bank.

 

PERFORMANCE IN USD (CLASS A)

COMMODITIES AND MORE

The continent’s massive wealth in natural resources, including precious metals, oil, copper and iron ore as well as vast areas of arable land mean that commodities are a vital part in the African economic growth story. But there are huge opportunities in other areas as well. The financial services sector is one such area. While the banking industry in Africa is well established and is one of the most active sectors on many stock exchanges, other areas within the financial sector are less developed, for instance, insurance and mortgage financing, providing opportunities as they grow and become more sophisticated. Opportunities in the consumer goods and services sectors, including the telecoms industry, are expanding exponentially amid the rapid growth of Africa’s middle class and rising household disposable income. The African Development Bank has projected that by 2030 much of Africa will have middle-class majorities while consumer spending is set to grow from USD680bn in 2008 to USD2.2tn. Nigeria, Africa’s largest consumer market, has a population of 158 million which is set to more than double by 2050, highlighting the huge potential for consumption.

 

ATTRACTIVE INVESTMENT

Africa’s potential is also underlined by the fact it is now one of the world’s major investment destinations. Africa recorded its largest ever share of global foreign direct investment (FDI) in 2011, according to a survey by global consultancy group Ernst & Young released in May this year. FDI rose 27% from 2010 and is expected to grow from USD80bn today to 150bn by 2015. Sectors which saw the largest inflows included manufacturing, infrastructure and services. China, India and other emerging markets have become major inward investors in Africa over the last decade while western countries such as the US, UK, France and Germany remain among the largest investors into the continent.

But what is equally encouraging is that investment is booming on an intra-continental level. Investment between African nations has grown by 47% since 2007 with South Africa, Kenya and Nigeria leading the way in intra-African investments. Intra-African investment helps overcome existing barriers between the continent’s diverse economies, allowing them to move forward more closely as an overall region, re-enforcing Africa’s ability to attract further foreign investment and its attractiveness as a place to do business.  This rising investment is also helping address infrastructure shortfalls as the needs of foreign investors to get goods in and out of countries means major upgrades of transport channels are planned or in process and governments are putting a priority on developing infrastructure. This in turn is driving private sector investment and promoting the development of bond markets to raise finances for infrastructure spending.

 

DEMOGRAPHIC POTENTIAL

Africa’s demographics also underline its market potential. While many countries in the developed world have ageing populations, almost half of Africa’s 1 billion population is aged between 5 and 24, making Africa’s youth potentially one of the biggest drivers behind the continent’s sustainable economic development. Moreover, Africa’s population is set to double by 2050 to 2 billion.

 

OUTLOOK

South Africa’s economy, Africa’s largest, will remain a prime investment destination on the continent because of its comparatively advanced environment for business, large resource wealth and diversifying economy. In Egypt, while further volatility is expected moving into the second half of the year, following the election of the new president, and depending on consensus, it is hoped that more clarity will emerge for investors as a new administration shifts its focus to the state of the economy and creates a path to recovery through necessary reforms. While Kenya remains highly exposed to events in Europe as its major trading partner and source of tourism, the country should continue to benefit from a growing consumer base, a good labour market and its established position as a trading hub in East Africa. Elsewhere, in Nigeria, while the market has been affected by the recent global sell-off (foreign participation in the market is around 80% and a global risk-off strategy will necessarily be negative for the equity market), new regulations from the country’s pension fund authority forcing relevant managers to allocate no less that 10% of their holdings to the local bourse should be positive for inflows and liquidity.

 

INVESTMENT ADVISOR

The Fund’s investment advisor is Sanlam Investment Management (Pty) Ltd (“SIM”), a multi-specialist asset manager offering its clients a broad range of portfolio management services and collective investment schemes for retail and institutional investors. As of 31 December 2011 it had USD43bn of funds under management, making it the second largest asset manager in South Africa.

 

IMPORTANT NOTE: This report has been prepared for information only, and it does not represent an offer to purchase or subscribe to shares. World Investment Opportunities Funds (“WIOF”) is registered on the official list of collective investment undertakings pursuant to part I of the Luxembourg law of 17 December 2010 on collective investment undertakings as an open-ended investment company. WIOF believes that the information is correct at the date of production while obtained from carefully selected sources considered to be reliable. No warranty or representation is given to this effect and no liability can be assumed for the correctness or accuracy of the given information which may be subject to change at any time, without notice. Past performance provides neither a guarantee, nor an indication of future performance. Value of the shares and return they generate can fall as well as rise. Currency fluctuations, either up or down, may also affect value of the investment. Due to continuing market volatility and exchange rate fluctuations, the performance may be subject to significant changes over a short-term period. Investors should be aware that shares in the financial instruments entail investment risks, including the possible loss of the invested capital. Performance is usually calculated on the basis of the relevant NAV unless stated otherwise. Performance shown does not take account of any fees and costs associated with subscribing or redeeming shares. It is assumed that all dividends were reinvested. WIOF prospectus is available and may be obtained through www.1cornhill.com. Before investing in any WIOF Sub-fund(s) investors should contact their financial adviser / legal adviser / tax adviser and refer to all relevant documents relating to the WIOF and its particular Sub-fund(s), such as the latest annual report and prospectus that specify the particular risks associated with the Sub-fund, together with any specific restrictions applying, and the basis of dealing. In the event investors choose not to seek advice from a financial adviser / legal adviser / tax adviser, they should consider whether the WIOF is a suitable investment for them.