MR MONEY MAKER: Africa adventure could ring up profit

MR MONEY MAKER: How an African adventure could ring up a profit for your portfolio

What’s Happening? 

If we just followed the headlines, then the entire continent of Africa has been written off by many investors as a fruitless search for fool’s gold. 

So I would ask you to leave all you preconceptions behind and think about a bigger picture and a longer story about how the economies on this continent are changing. 

Why Does It Matter? 

Africa is usually associated with poverty and greed, with income seemingly dependent upon mining of all types. 

Adventure: There are some telephony companies quoted in the UK which have specialised in telephony and money transfer services in Africa

Yes of course there are still many governance and political questions, but some of those same points can be raised closer to home as well. Rather, Africa is changing and this can best be seen by the greater value of trade between the nations. 

Traditionally, countries have sought to protect their economies with higher tariff walls. For anyone who has read anything about economics, this is rarely a route to success. Free trade areas tend to foster greater exchange of goods and services and greater wealth. 

Although it has been virtually ignored by the western media, the African Continental Free Trade Area (AfCFTA) has been signed and ratified by 34 nations and was implemented at the start of the year. This is not going to mark an immediate change but is a pointer in the right direction. However, there are some early ways of benefiting from the internal development of African economies and not just through the hollowing out of its minerals but through a way familiar to us all – mobile phones.

What Should I Do? 

I have seen from my own experience how telephony has leapt forward. We have moved on from the days when I had a landline phone in my office in Kampala, Uganda, but unfortunately, since there was no system in place, the plastic handset on my desk was just a status symbol. 

Now mobile phones are used for trading throughout a growing number of countries – and I must say mostly done successfully by the women in the villages. So we could look at investing in the mast infrastructure, although that is a longer play, or in actual operating and growing telecoms companies. 

Any Suggestions? 

Putting money in to Africa is for adventurous investors. There are in fact some telephony companies quoted in the UK which have specialised in telephony and money transfer services. 

Airtel Africa operates in 14 countries across the continent and is now the second largest mobile operator there with over 116m mobile customers and nearly 20m money transfer users. It is a member of the FTSE250 index so UK investors can buy easily. 

For a less risky ride, try a passive fund of the continent’s 50 largest shares, of which about half are in South Africa. The Xtrackers MSCI Africa Top 50 will give you a broader and more diversified portfolio.  

Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally.