Wednesday, September 30, 2009

Putting Your Money on Africa


When you consider investing in stocks, how often do you consider African companies or exchanges? How often does your broker suggest investing on African exchanges? Have you ever checked your mutual funds to see whether there are African companies listed?

The chances are, your answers are: Never or almost never, Never and No.

There are now 20 African exchanges (including a West African regional exchange) with listings from 26 African countries. Some of the listed companies are billion-dollar companies, such as the Nigerian banks created through the recent consolidation of that country’s banking system. There are others, such as South African Breweries, which purchased the Miller Brewing Company in America and is now a global firm with six brands among the top 50 in the world. Ashanti Goldfields of Ghana has showed up on many mutual fund lists, but most investors never realized they had money in an African firm.

Of the 20 African exchanges, South Africa is by far the leader. The Johannesburg Stock Exchange (JSE) has a market capitalization of US$561 billion. The other exchanges have a combined market capitalization of about US$70 billion. Only five of the non-South African exchanges do more than US$1 million in trades daily. The JSE has encouraged African companies to double list on their exchange to increase liquidity. Thus far, a Namibian company has taken them up on this deal, and the JSE expects several others will follow by year’s end.

The JSE also has encouraged other African exchanges to join the World Federation of Exchanges because passing its stringent membership requirements makes investors more likely to see them as world class. In addition to the JSE, the exchanges in Egypt and Mauritius have joined, and the JSE is helping the Nigerian exchange join as well.

Africa is considered by perceptive investors as a largely untapped and promising resource. Just as the Nigerian banks grew suddenly through consolidation, experts believe there is enormous potential from investing in successful African firms that are not currently listed on any exchange, but which offer tremendous potential for growth and profit. The average return on investment ion African exchanges has approached 30% before the recent global economic downturn. Banks have long led the way among successful African companies, followed by breweries. More recently, cement and construction companies, as well as telecoms are drawing favorable investor attention.

At the CCA Summit, one forum examined the viability and attractiveness of African stock exchanges. The panel was full of experts: Kenneth Ofori-Atta of Databank Financial Services, Geoff Rothschild of the Johannesburg Stock Exchange, Stefan Jekel of the New York Stock Exchange and Ashley Bendell of Exotics. All these gentlemen are fluent in the ins and outs of exchanges and understand Africa well. However, as I sat listening to them, in a room full of fellow stock exchange experts, I wondered how often do people such as these, when they promote African exchanges, talk to small investors, who control billions of dollars in disposable funds here in America.

In future, when African exchanges and other investment instruments promote themselves here in America, they might want to talk with the many investment clubs in this country. The late Reverend Leon H. Sullivan started the nationwide Self-Help Investment Program in the 1960s patterned after his “10-36 program” in Philadelphia. Through modest investments among his church members, millions of dollars in property is now owned by the trust established to manage the investment. Similar U.S. investment groups could help smaller African exchanges join the big leagues. American investor clubs might be more interested in an exchange where their money could make a big difference in small, but potentially profitable African companies. Just a thought.

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