RENEW Strategies

Don't Just Ask "What" - Ask "Why" and "How" to Invest in Africa

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Joshua Weissburg
| August 30, 2010

Over the past year or so since RENEW launched the online Marketplace and the local partnerships, workshops and vetting process that supports it, our team has worked to help investors interested in Africa answer an important question: "What should I invest in?" But of course, investors must answer two other questions as well: "Why Africa?" and "How should I go about this?"

This blog serves as a way for us to discuss answers to these questions. For instance, on the "why Africa?" question, U.S. News & World Report ran a story detailing the reasons that Nile Capital Management launched its Nile Pan Africa fund, "the first actively managed, U.S.-based mutual fund to focus exclusively on Africa." Larry Seruma, chief investment officer of Nile Capital Management, gives 12 reasons why he believes it is time to give retail investors access to Africa, crossing an important threshold that has until now been mostly the preserve of the BRIC countries. Seruma cites the following points (click through the link above to read more detail on each) in answer to the "why Africa" question:

  • Ground-floor opportunity
  • Low correlation
  • Strong growth expected
  • Profitable companies
  • Demand for commodities
  • Increasingly less violent
  • China's involvement in the region
  • Infrastructure spending
  • Low debt
  • Growing investment from abroad
  • Attractive valuations
  • Young demographics

After reading Seruma's arguments, one might think that African investments, if chosen wisely, are a sure thing. Ngozi Edozien, head of West Africa for the private equity firm Actis, speaking to CNN's Marketplace Africa, reminds us that this is not so. The question, "How should I invest in Africa?" matters a lot:

"You cannot invest in Africa and sit far way," she said. "You actually have to be close to your investment. You have to be close to what is going on so that you can make adjustments to your business and investment strategy as required."

Edozien calls this fly-in, fly-out approach (which many U.S. investors have tried, unsuccessfully) "briefcase investing." It does not work in Africa. This lesson, the "how", is one that RENEW spends quite a bit of time thinking about; it is the reason our team places so much emphasis, when working with SME owners, on our guide to investor relationships -- and why we think it is so important that investors understand the perspective of their investees.

Over the coming months, we hope to roll out more resources to address this key question of "how" to invest. Contact us at renew@renewstrategies.com or follow us on Twitter @RENEWLLC to find out more.