Inside the African portfolio
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The growth engine for Africa is clear, with one-third of investors planning to remediate their underweight status in the coming years.
But what does the path towards African investments look like?
Global investors will likely start offshore, with Eurobonds or indexed funds. As their comfort level increases, they’ll move onshore - into debt, equities and finally, private markets. In contrast, domestic institutions or African investors will start with their own government debt and then expand to cross-border equities. After that, it’s a quick jump to the private markets.
Wealth is driving the African private markets space
Alternatives growth is overwhelmingly driven by wealth investors seeking diversification and higher returns. Their portfolios are dominated by private assets (67%), with the remaining third in equities.
Institutional investors are taking a more traditional, balanced approach, shifting 12% into alternatives to diversify their equity and fixed income investments and achieve above-average returns.
The rising institutional interest augurs well for private market expansion. As more investors become comfortable with its risk-reward characteristics of private markets, AUM will follow.
27% of investors are under-weight African markets
Indexes, sustainability and private markets are the growth engines for African investments and provide a continent-wide view of what’s in scope for global investors.
The 27% of investors who are underweight Africa are poised to invest USD3.7 billion – not in some distant future, but now.
The vast majority (98%) of those funds will come from asset managers seeking diversification and enhanced returns from increased African exposure. But Africa is a big continent so where will those funds land?
Across the region, South Africa, Ghana, Angola and Zambia are the top markets likely to benefit from new global inflows, and the investment outlook is also positive for Kenya, Nigeria and Namibia, with growth of 18-33% expected. The first wave of investment is likely to follow the established offshore pattern of investing first in fixed income, particularly Eurobonds with their relative speed and limited FX risk.
Underweight investors are driving USD3.7 billion into African markets
As global investors diversify by allocating AUM to Africa, an additional USD3.7 billion investment inflow is expected over the next two years. Those funds will largely flow from asset managers looking to enhance returns by capturing upside from greater African exposure
A recent Standard Bank report projects Sub-Saharan Africa growth at 4%, outperforming the global forecast of 3%. Growth drivers vary by country, but the continent’s digital economy and rich commodities (including critical agricultural products and metals and minerals for clean energy) offer enticing prospects to global and cross-border investors.
Standard Bank’s 🌐African Markets Revealed provides in-depth commentary and analyzes key factors by market. On the ground knowledge makes this a valuable tool for investors. Here’s a brief look at the six markets that are of highest interest to global investors:
Angola - an improved outlook – but the risks remain abundant.
The outlook for the Angolan economy has improved, supported by moderating government debt service creating fiscal space and increasing developmental spending. Our growth forecasts for 2025 and 2026, at 3.4% y/y and 3.6% y/y respectively, now exceed our Jun 2024 AMR forecasts of respectively 2.6% y/y and 1.7% y/y. Now, we factor in higher general domestic expenditure (GDE), a metric that captures personal and government expenditure, as well as investment.
Ghana - must stay the course in restoring fiscal stability
GDP growth in 2024 may materially exceed our forecast of 3.8% y/y in the Jun 2024 AMR publication. We now see GDP growth reaching 6.2% y/y in 2024, from 2.9% y/y in 2023. This would be the fastest since 2019 when economic growth was 6.6% y/y. Given such an impressive recovery and amidst improving macroeconomic fundamentals, growth should remain relatively robust, at 5.4% y/y in 2025, and thereafter likely even rise 5.7% y/y in 2026.
Kenya - still fiscal pressures amid a more stable macro
We revise lower our GDP growth forecast to 4.6% y/y for 2024, and we forecast GDP growth of 5.0% y/y for both 2025 and 2026. Growth in 2024 was likely weaker due to tighter monetary policy, increased taxation constraining private sector appetite for credit, and weakening private consumption expenditure. The manufacturing sector struggled due to higher production costs, while fiscal pressures, and non-payment of pending bills by government, limited investment in infrastructure. However, growth in the agricultural sector was aided by El Niño weather conditions in 2024. We foresee aggregate domestic demand bouncing back in 2025, with lower inflation and easing monetary policy set to spur private consumption, while credit appetite is expected to improve for several sectors. The agricultural and services sectors should both drive growth.
Namibia - hopes of sufficient La Niña conditions
We slightly increase GDP growth for 2025 to 4.1% y/y (from 4.0% y/y), then rising further, to 4.6 % y/y in 2026, from what we estimate was 3.5% y/y growth in 2024. For the first 3-q of 2024, GDP growth averaged 3.3% y/y. The agricultural sector performed poorly in 2024 due to the El Niño-induced drought during the 2023/24 planting season. However, the higher probabilities of normal rains as well as indications of La Niña conditions (above-normal rainfalls) likely forming since Dec 2024, albeit delayed, bodes well for crop farming in 2025. The Southern Africa Regional Climate Outlook Forum (SARCOF-29) anticipates Namibia to experience normal to above-normal rainfall over the Nov 2024-Mar 2025 period.
Nigeria - still a reforms story, though with lesser pressure
We forecast real GDP growth at 3.5% y/y in 2025, from an estimated 3.2% y/y in 2024, based on likely sustained oil GDP growth and an improvement in the non-oil sector; much of the government’s flagship reforms have already played out in the last 2-y. While new investment remains inadequate, most of the government’s focus has been on reducing pipeline vandalism by way of improved security. The government’s focus will likely remain firm in 2025, with crude oil production likely averaging 1.63m bpd, translating into oil GDP growth of 7.6% y/y in 2025, from estimated 6.0% y/y growth in 2024. The recent improvement in regulatory approvals involved in onshore assets divestments should boost sentiment in the oil sector in the medium term, likely propelling crude oil production in that time.
Zambia - hopeful of a recovery – but downside risks dominate
Positively, real GDP growth in Q3:24 was 2.5% y/y, exceeding our (revised) projection of 1.0% y/y. We now therefore increase our 2024 growth estimate to 2.2% y/y. The largest contributing sectors to growth in the 9-m to Sep 24 were telecommunications (+11.8% y/y) and construction (+7.9% y/y). The largest detractors were agriculture (-15.8% y/y) and electricity generation (-25.8% y/y). We anticipate a further uptick, to 5.75% y/y in 2025, driven by momentum from 2024 growth drivers, a partial rebound in electricity generation and agriculture, renewed activity in wholesale and retail trade, and an accelerated expansion in mining output. Construction will remain a major growth area, underpinned by PPP-funded investment in roadworks, feeder roads, and social infrastructure.
Can Africa absorb and deliver on record investment growth?
Billions of dollars are queued for investment and 50% of investors are poised to move quickly. The prospects for growth a immediate and positive.
But can Africa's markets enable and facilitate this level of growth? As our next report will explain, 54% of global investors today face external factors that are limiting their ability to invest into African markets. This is a sharp escalation in the number of investors facing challenges investing into Africa (more than double that of our 2021 survey) and raises many questions around Africa's readiness to scale for foreign investors.
Where do their concerns lie and how can we reconcile the desire to invest with the operational practicalities of achieving that goal? Our next report will identify where investors are struggling and what changes could be made to assure free-flowing investment channels.