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Alternative Market Briefing

The Big Picture: Why should investors allocate to Africa

Monday, June 21, 2021

André Steyn
B. G., Opalesque Geneva:

Africa is the fastest-growing continent on the planet. From 2000, according to the World Economic Forum, "half of the world's fastest-growing economies have been in Africa." By 2030, more than 40% of Africans will belong to the middle or upper classes, increasing demand for goods and services. Household consumption is expected to reach $2.5tln, more than double that of 2015 at $1.1tln.

Africa as an investment destination, however, is not entirely without risks due to social unrest, lack of infrastructure, and poverty. Even with evidence of improvements, it is difficult to predict its economic trajectory.

But there are some firm believers in Africa as a favourable investment destination. Steyn Capital Management, an established African and frontier markets focussed equities investor located in the Winelands surrounding Cape Town, South Africa, has been investing in African markets since 2009. It manages more than US$700m in a South African long/short fund and pan-African and global frontier markets long-only funds.

"Our reasons for existence as a firm is to seek out market inefficiencies and after having done this for more than a decade in Africa, I can tell you that there are no markets quite as inefficient as the African markets," CEO André Steyn tells Opalesque in a recent Virtual Manager Visit video interview. He also believes there are some tailwinds that investors aren't paying for.

Africa has exceptional demographics, he explains, with a working-age population of 700 million, expected to rise to well over a billion in the next 15 years. This stands in very sharp contrast to much of the rest of the world, which is seeing population stagnation and even declines over the next 20 and 30 years. "The implication for demand for infrastructure housing and consumer goods should be very clear."

Favourable demographics

Source: Steyn Capital Management

Africa is also seeing very fast levels of urbanization with approximately 25 million people a year moving to cities, creating more built-in demand for infrastructure housing and consumer goods.


Source: Steyn Capital Management

At the same time, the continent is home to approximately 30 percent of the world's natural resources, much of this being undeveloped and only now moving into focus for international investors.

Natural resources

Source: Steyn Capital Management

Multi-decade growth story

"The interesting part is that investors currently don't have to pay for any of this," Steyn continues. " Our portfolio, which is a concentrated portfolio of 17 businesses, traded approximately six times enterprise value of EBIT (earnings before interest and taxes), which is the cheapest valuation that it has been at over the last decade in spite of being at the highest levels of company quality that it has ever been."

Across the businesses owned by Stein, the weighted average return on invested capital is more than 50%, suggesting very high-quality businesses, he says. "But the most astounding statistic is that these businesses have a weighted average market share of approximately 70%, and that's reflective of a level of market dominance which is only achievable in some of these frontier markets."

Multinational businesses that he speaks to tell him that they see Africa as a "multi-decade growth story."

Opportunities across African markets

Steyne Capital is currently targeting opportunities in African franchise consumer businesses including many of the leading brewers across African markets, which despite having market shares of 80% and above and growing volumes at multiples of developed market peers, are trading at substantial discounts.

The manager is also targeting opportunities in mobile telecom businesses with fintech businesses attached to them - many of which are operating as monopolies.

Then there are opportunities in African infrastructure businesses, including owners of irreplaceable assets like container-poor terminals, "which represent a way of obtaining what I would call almost a royalty on African growth over the long term."

For example, late last year, Steyn had the opportunity to acquire 7.5% of Heineken's business in Rwanda. "We knew this block was coming from a fund that was liquidating and we made a somewhat cheeky bid of 50 francs for the entire block when the stock was trading at 100. This bid was accepted and the company subsequently has reported earnings up almost 100%, leading the stock to slightly more than double. We still think it's very undervalued and it still is one of our core holdings."

Investor apathy

All of this is a result of investor apathy across Africa, according to Steyn.

Despite opportunities, reports Today News Africa, institutional investors remain hesitant when it comes to investing in the continent, largely due to perceptions of risk and lack of information about market opportunities. US pension funds for example have approximately $18.8tln in AuM but less than 1% of that is invested in Africa.

A significant amount of money exited the market in the last several years, creating inefficiencies. At the same time, however, some sovereign funds are looking at Africa. So Steyn does not expect the investor apathy to last.

You can watch the whole interview here:


Upcoming webinar:

Small Managers - Big Alpha - Episode 2

With larger quantities of capital chasing the same alpha strategies and continuing to erode alpha, savvy investors are turning to smaller and/or emerging managers as they look for alternative sources of return. Opalesque presents a carefully screened panel of such investment managers.

- Robert Zuccaro, Target QR Strategies,
- Mukhtader Mohammed, Arbitrium Capital Partners,
- Craig Reeves, Prestige Funds,
- Mark O. Witten, Portal Asset Management

• When: Tuesday, June 22nd at 10:30 am ET
• Free registration:


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