With rapidly-growing foreign investment, a fast-improving economic climate and emerging large consumer markets driven by a rising middle class, Africa is a continent investors cannot afford to ignore. The WIOF African Performance Fund gives investors access to a wealth of investment opportunities in a leading growth region with a strong future.


Described by some investment managers as one of the last great investment frontiers, Africa’s sheer scale gives it some inherent economic and investment potential:  It has 13% of the world’s population, is bigger than the USA, China, Europe, India and Argentina combined, it holds over 30% of the world’s mineral/mining resources and has 12% of the world’s farming land.


But it is not just its geographical and population size which marks it out as a must for investors – opportunity is being created by the dynamic changes that its countries and economies are undergoing, including rapid growth almost unmatched in other parts of the world and how Africa is benefitting from a “demographic dividend”. Africa’s population is expected to more than double from 1.1 billion to 2.4 billion by 2050 - the biggest increase of any continent. But crucially, Africa has a young and rapidly growing population (40% of Africa’s population is aged under 15).  Africa’s dependency ratio is falling i.e. more and more people are moving into the “productive” age range of 15 – 64, while the ratio is rising in the rest of the world. This means that Africa’s “demographic dividend” is just beginning to pay out.


Meanwhile, economies are benefitting from urbanisation as this workforce moves to towns and cities to find work. Although only 40% of Africa’s population is urbanised (400 million people) - low by developed world standards - Africa is urbanising faster than anywhere else except Asia. Africa now has 30 cities with populations above 2 million and this urbanisation is creating fast-growing and concentrated consumer bases that are easier to access. Indeed, people in cities spend 90% more per capita than non-urban dwellers.


The extent of this consumer ‘boom’ and how rapidly consumer markets are being created is underlined by some compelling statistics:

  • Consumer spending in Africa reached USD 600 billion in 2010 and is forecast to rise to USD 1 trillion by the end of this decade.
  • Half of Africa’s countries are now classed as middle-income states and Africa’s middle class is expected to grow from 32 million in 2009 to 57 million by 2020 and reach as much as 107 million by 2030.
  • Since 1999, 58 million Africans have moved from being classed as living in “survival mode” to “consumption mode”.


Investors can tap into this consumer boom through locally listed subsidiaries of multi-nationals, including the likes of Heineken, Diageo, Nestle, Unilever, BAT and Cadbury. These are all selling basic, everyday products at low price points and are powerful brands. Poor people cannot afford to experiment with products and they have to trust brands. But with low penetration rates, there is the promise of decades of volume growth ahead. There is also the chance to invest in companies offering consistent earnings growth, high ROE and ROIC and, as major international firms, they adhere to the highest standards of reporting and corporate governance.



But just having a wealth of potential is, on its own, simply that – potential. For many years investors steered clear of Africa, perceiving a lot of economies to be too small or underdeveloped to be interesting. But that has changed and Africa’s economies are among the fastest growing in the world while its middle classes – with the spending power to drive economies and companies to greater growth – are expanding just as quickly, allowing the continent’s potential to be reached.


Some specific indicators show how far Africa’s economies have developed in recent years:

  • Africa’s economy has grown by 5% per year for the last 15 years and similar levels of growth are forecast in many African countries this year and the end of the decade.
  • Africa had 9 of the world’s 15 fastest-growing economies last year.
  • Africa’s total GDP has tripled since 2000 and services are now close to accounting for 60% of average value added.
  • The continent’s trade with the rest of the world has grown over fourfold since 2000. The EU is its largest trading partner, but trade with partners, particularly those in the emerging world, has grown.


Africa has also had consistently high growth rates with only Asia having grown faster since 2000. But Asia as a whole has been slowing in recent years while African economies have continued to post far better economic growth rates than most developed nations.


As Peter Townshend, portfolio manager for the WIOF African Performance Fund says: “Africa is the last great frontier for investing. The continent has over 1 billion inhabitants, is growing faster than anywhere except Asia and has a young, rapidly urbanising population and emerging consumer class.”





In the past, some investors had been put off Africa by the perception that the continent’s business and investment environment was plagued by deep-rooted problems such as corruption, high political risk and underdevelopment. But while there may have been some truth in that in the past, things have changed and the climate for firms and investors is rapidly improving.


“Political risk is no longer a major threat in the markets that we are investing in as we have seen a tendency for political disagreements to be resolved within a reasonable timeframe, as was the case for Egypt during the revolution,” says Townshend. As he points out, post-revolution, the Egyptian market has been Africa’s top performer in USD over the last two years.


Corruption in Africa has also fallen in recent years as shown by improvements in the corruption perception index measurement [by international corruption watchdog Transparency International] for countries such as Botswana which ranks 31st out of 175 countries and Rwanda which ranks 55th out of 175 in the latest survey. Meanwhile, between 2012 and 2014, countries such as South Africa and Zambia have maintained their ranking. “This is a sign that corruption is not worsening in these countries,” says Townshend, adding that “while there is still corruption in other African states, the businesses that we invest in, both local companies and multinationals, are operating relatively well without any negative impact from perceived corruption”. Meanwhile, the processes of business registration and licence approval have become easier as African countries realize that to create employment and generate more taxes they need businesses to work efficiently.


This has all fed through into an overall improvement in the business environment – something confirmed by the continued expansion of multinationals across Africa, including major global firms such as Nestle, Microsoft in Kenya, General Motors in Nigeria and Google in South Africa and Africa is now one of the world’s major investment destinations. Africa’s share of global capital investment and job creation rose to a new historical high in 2014: Capital investment into the continent stood at USD128bn, up 136% on 2013. FDI was responsible for 188,400 new jobs, which was a 68% increase on the previous year. South Africa, Nigeria and Kenya – three of the fund’s major investment markets - are regional hubs driving FDI while Egypt has won back investors after turbulent recent years. The North African country was the second-most attractive FDI destination in Africa during 2014, as investors noted its greater political stability and key economic reforms.





The continent’s massive wealth in natural resources – it has 8.6% of the world’s proven oil reserves and 7.2% of its natural gas as well as vast reserves of precious metals, oil, copper and iron ore – often gets many of the headlines about the potential of Africa. But while commodities are a vital part in the African economic growth story, investment managers caution that an overreliance on commodities carries its own risk.


As Townshend says: “There are economies that are dependent on commodities and haven’t made much progress on diversifying and that will need to change at some stage as reliance on commodities alone isn’t sustainable.”


The fund’s portfolio, however, is weighted such that it is well-protected from such potential problems: it has a very small exposure to commodity-dependent sectors and the portfolio managers have no plans to increase that weighting substantially. And beyond this, many governments are well aware of the need to diversify their economies and natural resources have accounted for less than a third of the continent’s growth since 2000 - the remainder is from a healthy mix of other sectors, especially consumer-focused industries - according to global consultancy firm Ernst & Young.




Over the past year African currencies have been under pressure due to a stronger USD and local stocks have been affected by a risk-off investor approach to emerging and frontier markets ahead of an expected US rate hike. But the challenges of weaker exchange rates and higher US rates will likely be a short lived phenomenon. As African currencies depreciate, corporate earnings could be under slight pressure for companies that import raw materials and firms that have foreign debt. However, there will be opportunities in other sectors that are not exposed to those factors, such as financial services. But no matter what the outlook, the fund remains well-placed to continue to deliver the kind of performance which has seen it outperform its comparative index by almost 2% in 2015 (USD Class A absolute returns as of 31.10.2015) and more than 10% over the last five years (USD Class A absolute returns as of 31.10.2015) with the fund’s investment adviser employing a bottom up investment process which looks for undervalued investments.




The Fund’s investment adviser is Sanlam Investment Management (Pty) Ltd (“SIM”), a multi-specialist asset manager offering its clients a broad range of portfolio management services and collective investment schemes for retail and institutional investors.


IMPORTANT NOTE: This report has been prepared for information only, and it does not represent an offer to purchase or subscribe to shares. World Investment Opportunities Funds (“WIOF”) is registered on the official list of collective investment undertakings pursuant to part I of the Luxembourg law of 17 December 2010 on collective investment undertakings as an open-ended investment company. WIOF believes that the information is correct at the date of production while obtained from carefully selected sources considered to be reliable. No warranty or representation is given to this effect and no liability can be assumed for the correctness or accuracy of the given information which may be subject to change at any time, without notice. Past performance provides neither a guarantee, nor an indication of future performance. Value of the shares and return they generate can fall as well as rise. Currency fluctuations, either up or down, may also affect value of the investment. Due to continuing market volatility and exchange rate fluctuations, the performance may be subject to significant changes over a short-term period. Investors should be aware that shares in the financial instruments entail investment risks, including the possible loss of the invested capital. Performance is usually calculated on the basis of the relevant NAV unless stated otherwise. Performance shown does not take account of any fees and costs associated with subscribing or redeeming shares. It is assumed that all dividends were reinvested. WIOF prospectus is available and may be obtained through www.1cornhill.com. Before investing in any WIOF Sub-fund(s) investors should contact their financial adviser/legal adviser/tax adviser and refer to all relevant documents relating to the WIOF and its particular Sub-fund(s), such as the latest annual report and prospectus that specify the particular risks associated with the Sub-fund, together with any specific restrictions applying, and the basis of dealing. In the event investors choose not to seek advice from a financial adviser/legal adviser/tax adviser, they should consider whether the WIOF is a suitable investment for them.