19/12/2014 07:08 AST
Africa's attractiveness as an investment destination continues to grow in recognition, a leading investment expert has said.
According to Ashburton Investments African Equities specialist Paul Clark, the continent can boast some of the world's strongest gross domestic product growth rates, increasing political stability, expanding consumer classes and the return of a talented pool from the diaspora.
This confluence of factors has not gone unnoticed by Bahraini companies.
"Last year, Bahrain-based Islamic lender Al Baraka Bank announced a major Africa focus within its five-year expansion strategy, planning to invest $100 million in Libya alone, where it already had a presence," Mr Clark said.
"More recently, in October this year, BMMI - a Bahraini retail and distribution group with a presence in six African countries, including Mali and Ghana, invested a further $5.16m in the African market by acquiring a major new logistics base in Gabon," he added.
But Bahraini companies are not alone in seizing the Africa opportunity, Mr Clark said.
Over the past decade, Africa has continued to attract investment from an increasingly varied and international investor base.
With foreign direct investment flows to developed markets now at only 44 per cent of their pre-financial-crisis highs, in developing economies it reached a new high of $759 billion in 2013 (53pc of total flows), he said.
Of this, Africa attracted $56bn, an increase over the 2012 figure of $53bn.
Given Africa's growth prospects, the challenge for investors is to identify the best avenue for entering the market.
Due to its relative liquidity (over private equity, for example), listed equity is the natural starting point for many investors considering the African opportunity.
Good valuations combined with continued growth expectations have put the asset class centre stage with investors in Europe and the US.
Apart from providing returns to investors, stock markets can also be invaluable in aiding the broader economic development of a country.
According to IMF reports, if supported by the right policies and reforms, stock markets can help African companies expand operations, in turn creating jobs and contributing to wider economic growth.
However, there are other factors impacting the perceived attractiveness of the listed markets such as stock valuations, cost of trading, quality of the exchange and the depth and breadth of sector access.
Due to the developing nature of Africa's 28 stock exchanges, there is a constraint on the number and types of business that have listed, resulting in a degree of sector concentration (like financial services), which does not reflect the breadth of the country's economic activity, Mr Clark said.
However, stock exchanges are not the only entry point for investors looking to access the African growth story, nor are they, as yet, fully evolved.
Yet with the right policies and incentives, African countries can encourage the growth of their stock exchanges to become important vehicles for companies to raise capital, as well as providing returns to investors, he added.
Ashburton is the international investment management arm of the FirstRand Group.
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