15.01.2015

With rapidly-growing foreign investment, abundant commodity reserves, a fast-improving economic climate and emerging large consumer markets, 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 recent years:

 

  • Africa’s economy has grown by 5% per year for the last 15 years and some of its economies are among the fastest expanding in the world.
  • According to IMF data, six of the 10 fastest-growing economies in the world over the period 2001–2010 were in Africa. The IMF’s most recent forecasts are that Africa will have 11 of the world’s 20 fastest-growing economies by 2017.
  • Africa’s total GDP has tripled since 2000 and services are now close to accounting for 60% of average value added.
  • Consumer markets are emerging and rapidly expanding across the continent while consumer spending is expected to more than double in the next decade.
  • The continent’s trade with the rest of the world has grown over fourfold since 2000. The EU is its largest trading partner, but trade with partners, particularly those in the emerging world, has grown.

 

 

PERFORMANCE (USD)

 

 

 

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 while important, commodities account for less than a third of the continent’s growth since 2000, according to global consultancy firm Ernst & Young. The remainder is from a healthy mix of other sectors. The financial services sector is one such area as it grows and becomes more sophisticated. 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 sector are less developed, for instance, insurance and mortgage financing.

 

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 as household disposable income rises. The African Development Bank has projected that by 2030 much of Africa will have middle-class majorities while consumer spending will have grown to USD2.2 trillion – more than double current levels. Nigeria, Africa’s largest consumer market, has a population of almost 170 million which is set to more than double by 2050, highlighting the huge potential for consumption.

 

GEOGRAPHIC BREAKDOWN

 

 

ATTRACTIVE INVESTMENT

The continent’s attractiveness is underlined by the fact that it is now one of the world’s major investment destinations. FDI into sub-Saharan Africa grew 4.7% in 2013 and at a compound annual growth rate of 19.5% since 2007 and the estimated value of total investments in Africa rose 12.9% in 2013. South Africa, Nigeria and Kenya – three of the fund’s major investment markets - are regional hubs driving FDI. The former remains the premier foreign investment destination in the country on the back of the strength of its economy - in 2012 and 2013, the country received at least double the number of FDI projects of the second-largest recipient. At the same time, Kenya attracted the second-highest number of FDI projects on the continent in 2013 and is seen by many investors as a gateway into other East African consumer markets. It has also become even more attractive with the recent discovery of oil. Meanwhile, the sheer size of Nigeria makes it an attractive investment prospect – its GDP accounts for more than 80% of West Africa’s total output. Its population of almost 170 million and its improving business environment is a major draw for investors.

 

This investment is also diversified globally. The US and the UK are the largest investors in Africa but Asian investors are looking to take advantage of opportunities in Africa. Since 2014 India has implemented 342 FDI projects; China is today the continent’s largest trading partner – up from USD10bn in 2000 to USD200bn last year. In 2013 there was a 75% rise in Japanese investment projects in 2014. Meanwhile, intra-African investment – which economists see as vital for improving countries’ economic growth and expanding industries, and subsequently investment opportunities – is also growing. The share of intra-African projects in the continent reached an all-time high in 2013 while Africa has a number of regional economic communities, including the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC), improving conditions for intra-African trade and economic development.

 

Importantly, many businesses believe that things will only improve: companies established in Africa are reinvesting profits and cementing their presence on the continent and in a recent survey of businesses by consulting group Ernst & Young, 60% of respondents said Africa had become more attractive in 2013. And almost three quarters said the continent’s attractiveness will improve over the next three years.

 

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 five 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

Egypt: Egypt’s economy continues to show signs of recovery after a torrid few years while business confidence is up and the stock market is making significant gains. Indeed, the latter has not only already clawed back the losses of previous years but has moved well past pre-revolutionary levels. Political stability has returned while positive economic data is also helping keep sentiment buoyant and there is a growing optimism among investors about the country’s future.

Kenya and Nigeria: In Kenya and Nigeria, GDP growth should remain robust in 2015 with both countries expected to be able to cope with rising US interest rates. However, falling oil prices are a worry for the Nigerian economy and elections in February have the potential to affect confidence and economic activity.

South Africa: Despite concerns about this year’s faltering growth, nationwide strikes and power supply problems, many experts are predicting 2015 will be better for the South African economy. The government has said GDP growth should improve over the medium term as infrastructure constraints ease, private investment recovers and exports grow and consumer is expected to gradually improve. These factors together should add to a more promising market environment in the coming year.

 

INVESTMENT ADVISER

The Fund’s investment adviser 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.

 

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.