Peter Hughes, Apex Fund Services' Group M.D., discusses the investment opportunities within the African Sub-Sahara region and tells us why investors will return.

“Liquidity issues seen in Western countries play out very differently on the African continent, principally because any investment made into this region requires a particularly long-term outlook. Consequently, short term volatility that global markets are currently experiencing is somewhat isolated from African investments.

The current market volatility in the Western world provides opportunities for investment managers looking at Africa. These opportunities have been previously identified and taken advantage of by countries such as China and companies like Helios Investment Partners whose backers include Jacob Rothschild, Madeleine Albright and George Soros.

These three investors have an interest in Helios Towers Africa, the mobile phone mast company, demonstrating that investment opportunities do exist in Africa. Former IMF chief Dominique Strauss-Kahn said during a visit to Africa in 2010 that he had underestimated the continent’s resistance and that the IMF had revised its full-year 2010 economic growth estimate for Africa from 4.3% to 4.5% which, at the time, made it the leading region in the global economic recovery.

One significant weakness Africa has is its reliance on commodities and in recent weeks we have witnessed some softening of commodity prices – except for gold reaching $2,000. Any price falls can hit African governments hard, so the focus for sub-Saharan African nations will be to create more balanced economies less reliant on commodities.

Sectors where strong growth is expected include agriculture, but Africa has many of the conditions necessary for a fast growing, successful renewable energy sector; making it good for investment managers looking for alternatives to commodities. As Africa develops, energy demand will increase, yielding positive returns in the long run.

China has been quick to realise what African countries have to offer and benefited from adopting a ‘partnership’ approach with African governments. Chinese assistance has allowed for rapidly improving infrastructure networks, paving the way for future growth.

Africa’s geographical location is another key factor; it has close proximity to the Gulf, which despite the current downturn remains a debt-free growth area, and these nations are rightly benefiting from the Gulf’s strong economic activity. Combined with increasing stability and an expected increase in the flow of capital there are undoubtedly long-term opportunities in Africa”.

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