The Economist Cover Features Rising Africa

Recently, the Economist's cover featured a story called Africa Rising, which discussed many of the positive trends that Nile Capital Management believes make Africa a compelling long-term investment opportunity.  We would encourage you to read here for the Economist's viewpiont.

For more information about investing in Africa, please contact Nile Capital Management at (646)367-2820 or info@nilecapital.com 

We know Africa: From Cairo to Capetown

Caution Over Europe Means Opportunity for Investing in Africa

Recently, global markets have been concerned over a Eurozone recession, and the health of the world’s Developed economies.  In particular, worries over debt levels in the European Union have led many investors to fear for the health of the monetary union and become wary about global growth.

Given concerns over slow economic growth rates in the US and Euro Zone as well as high leverage in these regions, we believe that investors are seeking to diversify their holdings into an increasingly globalized allocation.  In particular, many clients are looking for greater exposure to the expected centers of global growth in coming years, which means allocating more capital to emerging economies.  We believe it is important from a diversification standpoint to look beyond some of the most high profile emerging economies in order to truly participate in the broader sources of the world’s economic growth.

To that end, we believe that Africa's potential for strong, long term growth (both in terms of economic expansion, as well as increasing consumption) and low correlation to other global markets makes it a compelling investment allocation in a global portfolio.  In fact, the economic growth rates of many of Africa's nations are expected to be some of the highest in the world in coming years.  Trends such as demand for natural resources, infrastructure development, and an expanding consumer market are all likely to support Africa’s economic growth for years to come.  At the same time, Africa's twenty-four capital markets have generally demonstrated not only a low correlation of returns with other global exchanges, but also a low correlation between one another.  This means that adding Africa to a global portfolio has the potential to provide your clients with exposure to strong, low-correlated growth in the coming years.

We believe utilizing Nile’s Africa fund vehicle as part of a global portfolio is an excellent way to capture the opportunity which Africa presents.  Nile’s active strategy, which is is underpinned by our Portfolio Manager’s twenty years of experience and familiarity with investing in Africa, should provide us access to compelling opportunities across the Continent.  Nile’s expertise may prove to be an essential aspect to allow you and your clients to successfully navigate Africa’s capital markets.  Nile’s Portfolio Manager travels to Africa frequently to conduct research, and we maintain contact with a network of on the ground analysts who provide research and information about securities in which we may consider an investment.  In addition, we are a US registered investment adviser headquartered in New York City and believe that transparency is key in the current investment environment.

One key reason why Africa continues to be an excellent opportunity for investment is its low correlation to other global exchanges.  In fact, over the past few years the correlation has been low enough to compare to US stocks and US bonds.  Although in periods like we are currently experiencing, correlations across global markets tend to converge as investors pare risk globally in response to concern over weakness in the developed world.  Recently, Fidelity published an article which noted precisely how low this correlation had been over the past few years and demonstrates the opportunity for diversifying a portfolio through an investment in Africa. 

(The original draft of the Fidelity article can be found here: https://guidance.fidelity.com/viewpoints/africa-next-growth-story) 

However, although Africa’s exchanges may have seen weakness in recent months, we continue to feel that the Continent maintains a significant deal of independence from global business cycles.  For example, consumption patterns in Africa have continued to trend upwards, with expansion of the number of middle-income consumers continuing to drive growth.  While markets may in fact have fallen as a result of reduction of risk, this does not mean that the fundamentals of the companies that trade there are correlated to changes in global stock markets.  We believe the current weakness in global markets as an important opportunity to allocate funds to Africa, and the valuations of the firms in which we invest, which were already compelling, have become even better in our view.  

In addition, a good deal of the appeal of investing in Africa comes down to the potential which it provides for investors to diversify their allocations, and decrease the overall volatility of their portfolio.  If an investor chooses to put money in Africa, and Africa continues to demonstrate low correlation, this means that the overall volatility of the investor’s portfolio could actually go down, even while funds are allocated to a place which is traditionally considered more ‘frontier.’  In fact, we have actually found that adding an allocation to Africa in a portfolio comprised exclusively of the S&P 500 has led to an overall decrease in risk over time.  

Source: Bloomberg; African Data Includes South Africa, Nigeria, Kenya, Mauritius, Ghana, Egypt, Morocco, Botswana, through 12/2009.

Finally, we believe that concerns over currency fluctuations have weighed heavily in the minds of some investors in recent months.  We believe that the recent weakness in emerging market currencies has been driven by investors’ desire to decrease exposure to risk in the face of uncertainty over the situation in the Euro Zone.  Outflows from these currencies has driven many of them lower in the past few weeks, however we believe that over time the situation will re-adjust.  Over the longer term, we still believe that there is a trend towards appreciation of emerging market currencies against the US dollar.  In fact, we would argue that capital inflows and strong growth are an inevitable long-term result of Africa’s emerging consumer base.

Thus, we believe that now is an excellent time to consider capitalizing on global market weakness to invest in a region which will provide low correlation, strong economic growth, and a strong recovery.  

For more information about investing in Africa, please contact Nile Capital Management at (646)367-2820 or info@nilecapital.com 

We know Africa: From Cairo to Capetown

Mobile Technology in Africa Continues to Make Rapid Inroads

In our discussion of investment opportunities in Africa, we at Nile Capital focus on three key themes around which we seek to invest.  One of these themes is the growth in infrastructure networks.  While this means that we seek opportunities in Africa’s growing physical infrastructure, this focus also extends to Africa’s growing digital infrastructure and mobile technology sector.  A recent article in the Wall Street Journal Technology blog helps explain why.  

As we have written in the past, the opportunity to invest in Africa’s growing consumption power is substantial.  Already Africa is a continent which contains over one billion people: put differently, about one out of every seven human beings currently lives in Africa.  Based on population growth rates, the continent’s population is expected to grow to over two billion by 2040, at which time approximately one in every four people on the globe will be African.  

In addition, Africa’s telecommunications land line network remains woefully inadequate.  In many countries where populations climb into the millions, the number of land line phones barely breaks five figures.  The challenge and prohibitive cost of maintaining a land-line network had for many years made it impossible for Africans to remain connected.

However, the introduction of cellular phone networks has caused a substantial shift in the landscape on the continent.  Whereas at the turn of the century cell phones were still relatively uncommon, market penetration over the past ten years has been profoundly rapid.  As we previously wrote:

Since the year 2000, McKinsey notes that 316 million new phone subscribers have signed up in Africa. However, they also note that in 2008 only 39% of Africa’s population had access to telecom services , 38% had access to modern retail, and 20% had access to banking (note that these statistics include South Africa, where the numbers are 92%, 68%, and 60% respectively, skewing the average up). It is amazing to think of the potential for growth in companies that are able to fill those gaps.

According to the Wall Street Journal’s Tech blog, cellular penetration across Africa has not only remained strong in the subsequent years, but it has actually overtaken Latin America as the world’s second largest cellular phone network, behind only the Asia-Pacific region.  According to the GSM Association (the global mobile phone operator’s body), Africa’s cell phone market has grown by more than 20% annually over the past five years, bringing the total number of subscribers above 649 million through the fourth quarter of 2011.  From 2007 through 2011, the number of cellular connections has more than doubled, rising from 283 million only five years ago.  In addition, the Association noted that it expects this number to rise to 735 million by the end of 2012.   

However, there remains a significant opportunity for further penetration in the cellular space.  While access has continued to improve, the Association also noted that 36% of individuals in Africa’s 25 largest markets remain without access to cellular phones.  In addition, 96% of phones are currently pre-paid, and data technology has only just begun to make inroads in the market.

Nile Capital, believes that there are a number of opportunities to participate in Africa’s growing mobile sector.   While this may mean participating in the growth of some of Africa’s largest telecommunications firms, it also means understanding how cell phones can change the landscape of communication.  For example, mobile banking is now making it possible for Africans who reside far from local branches to send and receive funds electronically, which helps to drive growth in retail bank deposits.  

While cellular communication in Africa becomes more prevalent and services improve, we seek to identify trends and opportunities to help our clients share in the growth.

To read the full report by the GSM Association, please visit here.

For more information about investing in Africa, please contact Nile Capital Management at (646)367-2820 or info@nilecapital.com. 

We know Africa - from Cairo to Capetown.

Market Watch: Africa “The Most Fascinating Region in the World Right Now”

In an article published yesterday on Market Watch, the opportunity for investing in Africa has again been highlighted, with the author noting that Africa may be the ‘final frontier.’  While the article notes that investors’ perceptions of Africa are still 'rooted in the past,' it also points out that many of Africa’s perceived challenges are similar to Europe during the Industrial Revolution, or even Asia in the not so distant past. 

The article justifiably points out that there are yet a number of hurdles to be overcome as Africa continues to grow.   However, while it points out that political challenges remain, and infrastructure networks are often insufficient, it also notes that a number of countries are in a 'virtuous cycle,' in which faster growth of tax revenue facilitates higher infrastructure spending, which encourages faster growth.  As many of Africa’s economies are expected to grow by 7% or more in the coming years, this cycle is expected to perpetuate itself in many of Africa’s nations.

Overall, the article points out that an emerging Africa has two significant implications for the global economy: first, it could precipitate a turnaround in the bearish sentiment around the global economy.  Many investors are presently focused on concern over the Euro, and seeking the next growth story for investment.  Perhaps, the article suggests, that Africa is it.  In addition, the article notes that Africa could be the last real emerging market story.  Globally, nowhere is as underdeveloped as Africa, and should the continent continue to grow as it has been in recent years, it is only a matter of time before it could experience ‘explosive’ growth.   We could not agree more.

For more information about investing in Africa, please contact Nile Capital Management at (646)367-2820, or info@nilecapital.com 

We know Africa - from Cairo to Capetown.

De Beers Moves Sorting and Sales of Diamonds to Botswana

An article in the Wall Street Journal caught our eye over the weekend, as it focused on a trend we have been noticing with increasing regularity across Africa.  The article, “De Beers to Deal in Botswana” (link) highlights the recent move by diamond powerhouse De Beers to move its rough diamond sales and sorting activity from its current location in London to the capital of Botswana by the end of 2013.  This move demonstrates a trend we highlighted in an earlier article (found here) about the potential for Africa’s industries to move up the production value chain, thereby creating more and better jobs in value-add industries.   

For more information about investing in Africa, please contact Nile Capital Management at (646)367-2820

We know Africa - from Cairo to Capetown.

Fidelity Investments Agrees: Africa Could be the Next Big Growth Story

In a recent article (found here) the Fidelity Viewpoints series provides a rationale for investors to consider Africa in their portfolio allocations. As noted in the article, there are a number of sectors in Africa that look compelling from both a growth and a diversification perspective. In addition, the article points out that the secular and economic trends in Africa should merit investors’ further consideration.

Although the opportunity for investing in Africa is becoming more widely understood, it is still relatively difficult to find a pure-play investment opportunity in the Continent. In fact, while a handful of funds many have exposure to Africa, we at Nile Capital Management believe that offering an actively managed, pan-Africa mutual fund makes us unique. As you can see in our most recent Fund Fact sheet Nile Capital is invested across Africa, and seeks opportunities throughout the Continent. This is in contrast to other funds where an allocation to African countries outside of South Africa, and at times Egypt, is still relatively rare. In reality, while Fidelity’s manager may speak favorably of the opportunities in Africa’s frontier, less than half of their fund’s exposure is in Africa, with the substantial majority of that Africa exposure allocated exclusively within South Africa.

Nile Capital is truly pan-African, investing in what we see as many of the greater opportunities in Africa’s frontier markets. We seek to invest in opportunities which capture the growth of the consumer class, the demand for infrastructure, and global interest in natural resources. We believe that Nile’s fund vehicle is well positioned to truly participate broadly in Africa's growth. Nile Capital Management’s expertise and focus on the African continent provides investors access to the Continent's potential for growth.

Nile Capital Management, the Advisor to the Nile Africa series of funds, is a New York-based asset management firm with in-depth investment expertise that covers the entire African continent, from Cairo to Cape Town. By focusing on Africa, the company seeks to identify and capitalize on the best investment opportunities in the continent and expand investors' access to emerging/frontier markets. Additional information is available at www.nilefunds.com.

Nile Capital Featured on Seeking Alpha

We at Nile wanted to briefly highlight a recent article about investing in Africa on Seeking Alpha (here), and our firm’s response (here).  Both articles were featured on the site’s front page, further confirming the growing interest for investing in Africa.

For more information about investing in Africa, please contact Nile Capital Management at (646)367-2820

We know Africa - from Cairo to Capetown.

Opportunity in Kenya: Strong Companies, Challenging Macroeconomic Picture

The East African nation of Kenya has, for many years, been one of the Continent’s strongest economies, and a hub in its region.  The country, which has a population of approximately 40 million, and a GDP of approximately $32 billion, has been growing its economy by double-digit rates over the past six years, and is expected to continue to expand at a healthy rate over the next five.  Kenya’s economy is considered the most developed in its region, and is often chosen as a starting point for multinationals looking to expand into East Africa.  In our view, there are a number of compelling opportunities for strong investment returns in Kenya’s stock exchange, however the macroeconomic overhang remains a challenge. 

Notably, Kenya’s Stock Exchange is one of the oldest in Africa, with a current market capitalization of around $12 billion, and over fifty stocks listed to trade.   The Exchange, which is the fifth largest by market capitalization in Africa, operates over an electronic platform, and is well diversified amongst a number of sectors.  However, the exchange only trades around $100 million worth of shares per month, and liquidity remains a challenge. 

Within the companies which are listed in the Nairobi Exchange we see a number of good opportunities for strong performance.  As a whole, Kenya’s listed companies are very well managed, and in many cases have high potential for growth.  In particular, on a recent trip to Africa we were impressed with a number of companies which produce cement, a necessary ingredient for infrastructure growth, as well as companies that serve the nation’s growing consumer demand.  Over the long term we believe many of these companies are trading at compelling valuations, and could be likely to perform quite well in coming years.

However, although economic growth and business performance has been strong in the past few years, we believe that in the short term the macroeconomic overhang in Kenya makes it challenging to find compelling opportunities.  On a macroeconomic level, the biggest story for Kenya’s economy in recent years has been inflation and currency depreciation.  As a country without substantial oil reserves, Kenya is a net importer of many goods, including petroleum products, food, and industrial materials.  As a result, it must maintain adequate currency reserves in order to cover the costs of goods coming into the country.  In recent years, the price of oil has risen substantially, driving up the cost of many of the products that Kenyans import and causing inflationary pressures.  This high demand for dollars in Kenya has resulted in the depreciation of the shilling against the US dollar.  For investors who are seeking opportunities in Kenya this depreciation is a particular challenge, as a gain in the stock market has the potential to be erased by exchange rate depreciation.  In fact, as you can see over the past three years the value of the Kenyan shilling (versus the US dollar) has decreased over 25%, and shares of the largest firms listed on the Nairobi Exchange are down over 30%.  


Going forward, we believe that there will be more depreciation to come for the shilling, as real interest rates remain negative, and inflationary pressure persists.  In addition, Kenya will hold elections in August of 2012, which could mean uncertainty for investors who remember the challenges of the 2007 election cycle.  Although a drop in oil prices has the potential to ameliorate some of this pressure, we think that the government will continue to raise rates in order to combat the rise in prices.  However, we also believe that the end of this cycle is getting closer, and as current yields converge with inflation, our interest in some of Kenya’s strongest businesses will continue to grow.  When this happens, we believe it would be a good entry point for some of the opportunities we find most compelling, and we will continue to watch for the right moment to invest.     

For more information about investing in Africa, please contact Nile Capital Management at (646)367-2820

We know Africa - from Cairo to Capetown.

The Case For Africa: Still Strong, Amid Global Challenges

Equity markets around the globe have been challenged this month, with concern over the United States’ spending policies driving headlines, and worries over European debt markets sending markets lower worldwide.  Notably, markets were shaken by continued trouble in Europe, as bad debts in the ‘PIGS’ (Portugal, Ireland, Greece, and Spain) are pointing to the necessity of future actions to stabilize the European monetary union.  Africa’s markets have reacted negatively in tandem with a global fall in equities, as rising fear has led to a broad flight to safety worldwide. 

In the short term, we believe that the situation in the Euro zone will need to be resolved in order to restore confidence to global markets.  We expect that the Euro zone will take further steps towards this end in the very near term, and believe that concern will be mitigated by the end of 2011.  This resolution could come in the form of a tight integration of fiscal and monetary initiatives among the EU; a breakup of the Euro, an increase in size in both the European Central Bank and European Financial Support Facility liquidity and guarantee programs; a restructuring of the debt of Greece, Italy, and Spain; or by any combination of the above.  In most cases, the short term growth outlook for the EU region is poor.

On the other hand, a leveling off of commodity prices from a growth slowdown in Developed Markets will improve real consumer spending power, supporting consumption in most economies, especially within Emerging Markets.  In fact, for a number of months we have believed that commodities were likely to be challenged in the short term as concerns over global growth rose.  Notably, concern over inflationary pressure stemming from high oil and food prices has been suppressing returns in Emerging Markets year to date, as consumers have been forced to use more of their income to purchase basic commodities.  Should that change, we would expect to see Emerging Market consumers increase their spending, which would be a positive sign for these markets.  In addition, we have already seen Emerging Markets across the globe – including many of Africa’s nations - raise interest rates in order to curb inflationary pressure.  However, we believe that the cycle of monetary tightening is coming to an end in the Emerging world, and that consumer spending will drive returns in the short term.  To that end, we believe the opportunity for investing in consumer goods, which we feel will prove protective during increased market volatility, has become more compelling.

In the longer term, we continue to believe that growth in Developed Markets will remain anemic over the coming years, as high debt levels, unemployment, and entitlement spending will make it difficult for sustained growth to occur.  On the other hand, Emerging Markets – most notably Africa – have demonstrated strong growth over the past few years, and are expected to continue their expansion over the coming decade.  Thus, investors who are seeking opportunities for growth should continue to seriously consider allocating capital to the continent of Africa.  We continue to see Africa as the best exposure to have among various investment options due to slowing growth in the US and other Developed Markets.  We also view Africa as favorable relative to other EM economies that may be overly dependent on US or EU growth.  We see the growth story in Africa as a secular trend, supported by increasing urbanization, rising real incomes, improved economic policies, and long needed large infrastructure investments.  We believe that once these changes have been kicked off, the process will continue to build on itself to create long term growth.  Although in the short term Africa’s markets have been challenged along with the rest of the globe, the long term investment opportunity makes this a compelling time to buy.

For more information about investing in Africa, please contact Nile Capital Management at (646)367-2820 or info@nilecapital.com.


We know Africa - from Cairo to Capetown.

Africa: Illuminating the 'Last Bastions of True Growth in the Emerging Markets'

In the June issue of Louis Rukeyser’s Mutual Funds, “the Rukeyser Interview” checked in with Nile Capital Management’s Larry Seruma, who discussed how the investment spotlight is shifting towards Africa to illuminate “the last bastions of true growth in the emerging markets.”

The interview highlights a number of reasons why we believe Africa is a compelling destination for investment capital.  It points to the fact that the valuations in Africa’s markets are compelling relative to US as well as other emerging and frontier markets.  Thus, on a relative basis, stocks which trade in Africa’s markets are at a significant discount to their global peers and could experience significant upside.

The article points out that the strong performance of Africa’s markets, noting that over the past ten years Africa’s markets have done significantly better than other emerging markets, with lower volatility.  In fact, Africa’s low correlation of returns intra-continent, as well as its low correlation to other global markets, means that adding an Africa only investment to one’s portfolio would have actually decreased volatility over the past ten years.  Thus, Africa potentially allows investors to gain additional exposure to emerging markets in their portfolio without having to take on additional risk.

In addition, the article points out that while the industrialized world is scrambling to find new sources for oil and other natural resources, investors will find that Africa’s substantial deposits will become ever more compelling in the global marketplace.  Thus, natural resources will present a sustained driver of economic growth in Africa for some time.

The interview also emphasizes that the demographics of Africa make it a compelling destination for investment capital.  It notes that Africa has a “swelling middle class” and a young population (40% of the population in Africa is under the age of 15), which means an increasing number of productive workers and an increasing consumer population (read here). As a result, the interview notes that Africa has an advantage over nations like the United States, where the population is older, and less poised for growth. 

Africa’s large and youthful middle class has and will necessitate strong and stable growth in banking, construction and infrastructure.  The article notes that both physical infrastructure and digital infrastructure are critical sectors to watch, highlighting that “Africa’s urbanization has led to a boom in new infrastructure building” for which “the main ingredient is cement.”  For Nile Capital Management, this presents opportunities in a number of names which provide building materials and construction services. 

At the same time, the article notes that “there are 1 billion people in Africa and more cell phone users on the continent than in the entire US market—but cell phone penetration is only 37 percent.”  Digital infrastructure is for many investors in Africa a touchstone, as it has seen remarkable growth in a relatively short period of time, and the industry remains poised for strong growth for years to come.

The article also highlights some specific investment opportunities which we find compelling, notably focusing on names in the infrastructure and consumer growth spaces.  It also reminds readers that while Africa offers incredible opportunities for investors, its economic and systemic diversity can make investing intricate.  Notably, Nile Capital Management often emphasizes that investing in Africa requires a detailed knowledge of the diverse countries and sectors which make up the investment landscape, and is best suited for investors with a long time horizon.  Although there is substantial potential for investors on the continent, these barriers make it more prudent for investors to seek managers who understand the investment landscape and can effectively manage risk. 

To read the full interview, please click here.

For more information about investing in Africa, please contact Nile Capital Management at (646)367-2820 or info@nilecapital.com.

Nile Capital Management: We know Africa - from Cairo to Capetown