A Guide to Investing in Africa

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According to projections by PricewaterhouseCoopers (PwC), the world’s leading developing economies will evolve to rule the world by 2050. More specifically, both China and India will supersede the US to become the two largest economies by measure of GDP by 2050, while Indonesia (4th), Brazil (5th) and Mexico (6th) will also grow markedly during this period.

Interestingly, the wider economy of Africa will also grow significantly during this time, with Nigeria breaking into the top 10 global economies by 2050. This is telling, especially as many investors still see investing in Africa as the ‘final frontier’ as other emerging markets continue to mature.

But how can you invest in African markets, and what are the benefits and risks associated with this pastime?

Exploring Exchange Traded Funds (ETFs) and Mutual Funds

Let’s start with the basics; as the easiest way to invest in Africa is through vehicles such as ETFs and mutual funds.

But why are these investment vehicles ideal from the perspective of investors with an interest in African markets? Well, one of the main benefits is that both types of fund are traded on US stock exchanges, making them widely accessible and capable of benefiting from increased trading volumes.

On a similar note, you can seamlessly access and manage the funds through your welcome bonus forex account, so in truth it has never been easier to profit from growth in African marketplaces.

Additionally, both ETFs and mutual funds feature built-in diversification, which helps to minimise investor exposure and manage risk more effectively. Participating in these funds is also cheaper than manually building a diversified portfolio over time, particularly when compared with buying individual stocks and shares.

Currently, the most popular South African exchange traded fund is the so-called “iShares MSCI South Africa ETF (EZA), which interestingly represents the only pure-play to invest in the region.

The Benefits and Risks of Investing in Africa

There are numerous benefits to investing in Africa, not least because the region offers the highest return on foreign direct investment in the world, according to the OPIC and UNCTAD bodies.

Similarly, Africa is rich in natural resources, many of which remain untapped due to a combination of low population density and minimal infrastructure (and spending).

For your part, you’ll need to measure these advantages against the potential risks of investing in Africa, which include the overriding lack of governmental infrastructure and widespread corruption in some regions. Without strict governance or consistent policies, it can be hard for assets to thrive and gain value over time.

Africa also suffers from a high rate of civil wars and conflicts, which continue to take a heavy human toll on the region.

This, in turn, translates into reduced productivity and sustained periods of economic stagnation, while regular changes in regime and governance can make it incredibly hard for businesses to thrive over an extended period of time.

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