Funmi Akinluyi, Silk Invest's Investment Director, Sub-Saharan Equities

2012 could be a good year for local companies that have solid business strategies in their respective markets. Funmi Akinluyi, Investment Director of Sub-Saharan Equities, Silk Invest explains why locals are best positioned to capture the existing investment opportunities on the continent.

What investment trends can we expect to see in 2012? Which economic sectors are likely to attract financing and why?

Infrastructure Investments will be an important theme going forward. There is an enormous need for an improved framework around the energy, water and transport sectors. Improved infrastructure is also necessary to ensure the sustainability of the increasing urbanisation and to build a solid supply chain from businesses to consumers.

Oil, gas and mining  will also continue to attract foreign investors. Africa has a wealth of natural resources and less than half of the continent has been geologically surveyed.

At Silk Invest, we are mostly focused on consumer-related opportunities such as food and beverages, telecommunications, financial services and housing development, to name a few examples. We believe that the local companies are best positioned to benefit from the continuous economic growth that will come from the African consumer in the medium and long-term. We also believe that local players are best positioned to understand how to capture the opportunities on the ground by creating and executing the right business strategies in their respective markets. A good example of this is the success of mobile banking and how it found ways to accelerate banking penetration in a segment that was once deemed ‘un-bankable’. Within the food industry, we have also seen how companies with the ability to provide accessible products have already positioned themselves as market leaders, ahead of numerous multi-national organisations that are trying to get a foothold across the continent.

Which region in sub-Saharan Africa is likely to attract international investors?

Today, most Foreign Direct Investment (FDI) goes to the major economies in Africa. However, because many African economies are set for high economic growth levels combined with an increasing number of foreign investors that acknowledge the investment opportunities across the continent, we would expect an increase in the number of different investment destinations.

As an example, we are already seeing increased investments going to countries like Angola and Ethiopia. Angola received the highest FDI inflow in sub-Saharan Africa in 2010 at $9.94-billion compared to the total figure of $8.63-billion for Nigeria ($6.10bn) and $2.53-billion for Ghana, according to the United Nations Conference on Trade and Development figures.

It should also not be forgotten that the larger and more developed African economies such as South Africa, Nigeria, Morocco and Egypt are increasingly investing around the continent as well. 

What are the top risks facing investors in 2012?

If this question were asked a decade ago, the first risk I would have highlighted would have been political risk. But with the increase in successful election processes and the emergence of democracy across Africa’s largest economies, I believe this risk has declined. There are still a few isolated cases where much political development is due, but as a whole, the continent has made enormous improvements in the way it is governed. 

As investors, we believe the focus should be more on managing the risks associated with lower levels of capital market liquidity and the impact that increased volatility of commodities may have on currencies and basic goods. The best way to do this is by applying reasonable levels of diversification when investing.

Your recent survey on frontier markets indicated a positive view on the investment opportunities in Africa by international investors. What are the key drivers of this interest?

The Silk Invest survey clearly indicates that people realise that Africa is no longer the charity case that it was famous for in the 1980s and 1990s.  Now, the perception is no longer only about conflicts, poverty and corruption.  People are starting to realise there has been much progress in the form of high economic growth, political stability and improved governance. Although some countries are still in the early stages of political and economic development, political stability has been steadily increasing as measured by the World Bank and Transparency International.

During the global crisis, the continent managed to move further up its trajectory of economic growth; despite the fact that the global economic crisis pushed many of the world’s developed economies into recession.

According to figures by the International Monetary Fund, the 2011 GDP growth is forecasted to be at an average rate of 5.75% across sub-Saharan Africa. The increasingly proactive monetary and fiscal policies by the various African governments have helped the region to prosper in contrast to the adverse conditions that are weighing on the global economy.

One of the main driving forces that underpin the economic expansion of the African continent is its favourable demographics.  Africa is currently populated by almost one billion people of whom more than 40% are below the age of twenty. These dynamics especially matter in the most populous nations such as Nigeria with more than 160 million people and Egypt, home to roughly 80 million people.

Within demographic trends, urbanisation is one of the strongest catalysts for growth as it accelerates the creation of a middle class. It is a fact that disposable incomes are rising across the continent allowing more money to be spent on non-food items. The concept of the African Consumer is truly starting to emerge.

In addition, Africa is home to some of the world’s largest deposits of natural resources. The national revenues that are obtained from commodities often translate into strong sovereign balance sheets, allowing for governments to invest and support the development of their economies.

UK-based Silk Invest is a specialist fund manager frocused on frontier markets