October 24, 2013

How to invest in Africa

In the earlier article, Thoughts on contrarian investing and how it relates to Mexico and Somalia, we came to the conclusion that it could be profitable to invest in Somalia. I'm no expert on Somalia so it wasn't my conclusion, but it was a conclusion made by Hans Rosling - a Swedish medical doctor, academic, statistician and public speaker. He might be most famous for a popular speech with the title The best stats you've ever seen. The conclusion from the speech is that the so-called emerging countries are improving in terms of health.

When you think of the emerging markets, you are often think about countries like China, India, or Brazil. But from a contrarian point of view, Africa might actually be a better investment opportunity. So how can you invest in Africa? The easiest way is probably to buy an ETF, such as the Market Vectors-Africa Index ETF called AFK:


According to ETF database this is actually the only ETF available with exposure to entire Africa. You might also find ETFs with exposure to South Africa, Egypt, and Nigeria (Africa ETF list). The countries including in AFK ETF can be found in the table below. It might seem strange since Norway is not a part of Africa, but I suspect that the ETF buy shares in Norwegian companies with an exposure to Africa. The description says "The Index provides exposure to publicly traded companies that are headquartered in Africa or that generate the majority of their revenues in Africa." In comparison, the Swedish fund Simplicity Afrika has invested 82% in South Africa and 9% in Nigeria.

Nigeria26.1%
South Africa24.15%
United Kingdom16.67%
Egypt14.77%
Morocco10.04%
Canada3.84%
Norway2.48%
Kenya1.42%
Australia0.81%
Other-0.28%

Investing in individual countries, like Rwanda and Somalia, is today an uphill battle. But you can read more about it in How to invest in specific countries in Africa, like Somalia and Rwanda.