Simon Page, our Global Head of Fund Services, takes a look at the promising African funds landscape and the key challenges and considerations facing managers and investors looking to succeed in the region.
As 2023 started off against an uncertain economic backdrop, fund managers and investors globally are continuing to be faced with a growing list of geopolitical issues. The conflict in Ukraine, US-China tensions, rising nationalism, protectionism and climate change all make for an increasingly volatile market… and that’s before the COVID-19 hangover fully kicks in.
Advanced economies now have less runway for growth due to factors such as ageing societies, shrinking labour forces and gross domestic product (GDP) growth slowing or declining.
As a result, managers and investors alike are all asking the same question: where are the investment opportunities and how do we access them?
Investing in Africa
Opportunities in Africa’s funds market
Those with a focus on Africa will argue that, despite its challenges, future growth in the continent is inevitable.
While it’s dangerous to generalise a continent of 54 countries – each with their own growth drivers, inherent risks and regulations – Africa clearly has huge underlying opportunities.
With the youngest population in the world, Africa has significant latent potential for super-charged growth through its young, emerging workforce – all of whom will require jobs, healthcare, food and education.
What’s more, under penetration is evident in some sectors, adding to the opportunity for broad, robust growth across multiple segments of the market. At the same time, tech innovation and the rise of Africa’s digital economy – fuelled largely by enthusiasm off the back of the global pandemic – creates a sense of optimism for investors.
There is also the prospect for investors to truly make an impact when looking through an ESG lens, with the double bottom line of investing into the continent for financial performance, as well as the opportunity to make a positive impact with every dollar spent.
The challenges for Africa’s funds market
There are obvious barriers associated with investing into Africa including governance, regulatory and compliance issues, as well as the cyclical difficulties around foreign exchange. The ever-present challenge for businesses in Africa, however, continues to be access to capital.
Even with challenging markets globally, and the latent potential in parts of Africa, fund raising for African investment remains a significant challenge.
Large scale investment in the continent is still dominated by development finance institutions (DFIs) – specialised development banks or subsidiaries set up to support private sector development in developing countries.
They provide patient capital, smoothing over any current pervading market risks, and generally act as the main player and chief risk taker on the continent.
While the importance of the DFIs to Africa cannot be understated, their investment alone is not enough to solve the continent’s capital conundrum. A key challenge for Africa will be how to boost investor confidence in the region more broadly.
What’s next for Africa’s funds landscape?
Africa’s overarching potential has been self-evident for some time, and the ESG angle has certainly created further opportunities, but there are other factors that could tip the scales for an investor in their decision-making process.
Factors include commitment and engagement from local institutional investors; specialist managers, rather than generalists, and those with active teams and boots on the ground; clear strategies on value creation having priced correctly on entry, to demonstrate the returns opportunity; and finally, the exit strategy.
Ultimately, the African continent needs to be more readily embedded into the global economy, and a key way to drive this forward is for there to be more general partners (GPs) operating in Africa to mature the market.
The GPs themselves will not only bring partnership, collaboration and strategic thinking, but also access to a global network and the removal of the traditional obstacles that have previously stood in the way.
How can we provide support?
As an established specialist in Africa, we work with international corporations, financial institutions, investment managers and high net worth individuals, helping them to realise their specific financial and investment objectives across the continent.
Our dedicated funds teams in Jersey and Mauritius provide an end-to-end service tailored to the needs of managers, promoters, directors and investors. With strategically located offices across Europe, Asia-Pacific, Africa and the Americas, we are well placed to administer investment companies, special purpose vehicles and carried interest structures globally.
To find out more about our fund services offering and how we can support you, please visit our Fund services page.