As one of the world’s great international gatherings – and a far more photogenic one than a bunch of besuited G20 leaders converging on a remote island compound – it’s understandable that the World Cup inspires a slew of geopolitical commentary.
From antagonistic nations clashing on the field (I am thinking of Iran versus the USA, not England versus Wales, actually) to rival politicians high-fiving in the VIP seats, the possibilities for punditry come on as fast as an in-form Marcus Rashford.
And for years now, one such staple has been ‘The Rise of Africa’.
Back in 1977, football legend Pele predicted an African nation would lift the World Cup by 2000.
We’re still waiting. If anything, progress has plateaued since the 1990s!
Still, over the past 30 years many more of the continent’s stars have risen to greatness. It’s now common for African players to bestride the stadiums of Europe as their team’s best asset.
As for the 2022 World Cup, for the first time all five of the event’s competing African nations boasted African coaches, highlighting the depth, quality, and confidence of African football today.
The fulfilment of Pele’s prediction seems inevitable – even if his timing was a little off…
Growth out of Africa
I believe African football’s ascent will someday be matched by Africa as a whole, if only due to demographics.
The second-largest continent after Asia, far fewer people currently call Africa home – roughly 1.4bn compared to Asia’s 5bn.
But Africa’s population is the world’s youngest and its most expansionary. As other regions see their citizens age and their census counts decline, Africa will still be growing.
A telling statistic: in 2050, one in 13 children worldwide will be born in Nigeria alone.
That same year the Earth’s population is forecast to hit 9.5bn – up from 8bn today. A quarter of us will be African. Such rapid growth is without precedent. Africa’s population will have risen tenfold in the 100 years since 1950 – compared to just a fourfold increase in Asia.
The challenges this will present are immense, not only because of the strain a burgeoning humanity is putting on the environment, but also because of the poverty of many African nations.
Of the poorest 28 countries in the world – with extreme poverty rates above 30% – 23 are in Africa. Extreme poverty rates are also declining much more slowly for African countries than globally.
Yet troubling though such statistics are, there must also be a huge opportunity here.
As much of the world shrinks, African markets will grow. And as Western and even Asian workforces age out, Africa’s younger population will be stepping up to the plate.
Under exposure
Of course, we should not over-generalise. Africa is a vast continent – all the land of China, Europe, India, the US, and Japan could be jigsawed into its boundaries – and there is wealth and sophistication aplenty alongside that sadly perennial poverty.
As both its consumers and its capital markets mature in the years ahead then, investors will need to be discerning when evaluating the Africa’s prospects. But for now, any attention at all from global investors might be welcomed by African countries – and provide a balance to the huge strategic investments made by China in Africa over the past 20 years.
Currently, all emerging markets are out of favour with Western investors. It’s more than 20 years since the term BRIC was coined for the fastest-growing economies – Brazil, Russia, Indonesia, and China – and even in those heady days only one African country, South Africa, got a namecheck, when the acronym was occasionally expanded to BRICS.
That catchy acronym marked more the peak than the start of a cycle. Emerging markets badly lagged the ‘growth stock’-driven rally that followed the 2008 financial crisis. And while 2022 has seen a modest reversal in fortunes, emerging markets remain unloved.
Moreover, putting money into a standard emerging market fund doesn’t get you much exposure to Africa. The only chunky allocation to Africa in the widely tracked MSCI Emerging Market index is, again, South Africa. And its share has dwindled from near-10% in 2003 to below 5% today.
This scant allocation doesn’t represent prejudice so much as a dearth of African-domiciled firms of size – or even institutional scale stock markets, outside of South Africa’s Johannesburg Stock Exchange.
The Nigerian Stock Exchange – the continent’s second biggest – has a total market capitalisation comparable to the value of US-listed 3M, the maker of Post It notes.
Or for another example of the paucity of opportunities, look at Blackrock’s Frontiers Investment Trust. This fund invests in countries that have not yet achieved official emerging market status. Yet even with this adventurous remit, not one of its top 10 positions are in Africa.
As of March 2022, the African country with the largest weighting in the Frontiers fund was Nigeria. And it comprised just 0.3% of the trust’s net assets.
Very risk-tolerant investors could consider investigating the one specialist African investment trust I can find – the tiny £14m African Opportunities Fund – or even the dollar-denominated Xtrackers’ MSCI Africa ETF. But the tiny market capitalisations of these securities again highlights the scarcity of investment possibilities right now.
Invest in Africa closer to home
If even professionals find it hard to invest in African-listed companies, what chance do we have?
True, but instead we might look at UK-listed firms that have a lot of exposure to the continent.
One promising company to consider is FTSE 250 listed Airtel Africa. This telecoms outfit provides voice and mobile data services – as well as burgeoning Fintech operations – to 135m customers across 14 Sub-Saharan countries. And as Africa’s second-largest telecoms supplier and with a market cap of £4.6bn it’s no pipsqueak. Definitely worth researching.
A more familiar British firm with big exposure to Africa is PZ Cussons – the maker of Carex soap and Original Source shower gel. Just over a third of its revenues are generated in Africa – mostly Nigeria, where PZ Cussons has the leading baby care brand. That’s intriguing given the Nigerian demographics I highlighted earlier, although remember it’s just one cog in PG Cussons’ big machine (and note too that the territory has suffered from to several years of political unrest).
It’s worth bearing in mind that even giant consumer goods companies like Unilever and Diageo will give you exposure to Africa. Diageo discloses that Africa already accounts for 10% of its revenues. Unilever lumps the continent in with Asia in its reporting, but given the consumer behemoth’s pivot towards emerging markets and the existence of separate subsidiaries such as Unilever Nigeria, it’s likely Africa again comprises a growing proportion of its top-line.
Of course, the traditional way for British investors to put money into Africa is via commodity plays.
The big FTSE miners and energy companies have long had huge operations in Africa, from oil extraction in Nigeria to gold mining in South Africa. There are a host of smaller commodity players active on the continent too, from oil producer Tullow Oil to gold miner Centamin.
Indeed, you could spend weeks researching all the commodity firms listed in London that operate out of Africa. However, in my opinion that’s not really in the spirit of investing in Africa.
Commodity firms might benefit from a reduction of political risk on the continent, were that to transpire. But they won’t get you exposure to the African consumer of the future.
A game of two halves
By the time you read this, England’s Lions will have had something to say about at least one African team’s progress in the World Cup – or vice-versa.
Football forecasts lie outside my circle of competence. But as a season ticket holder to the great game of globalisation, I feel confident in stating we’ll hear much more from all our companies over the next few decades about their business interests in Africa.
In fact, I’ll make a prediction to rival Pele’s: by 2050, one of the largest companies in the world will be headquartered in Africa.
Let’s hope we don’t have to wait until 2095 to find out whether I am closer to the mark than he was.
