Investing into Africa: Changing drivers
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What is driving this positive outlook - and why are global investors paying greater attention to Africa than ever before?
Behind the African narrative are a number of key thematic drivers that are driving a rethinking of how many perceive the African investment opportunity. The growing role of index investing is opening new channels of investment, as is the sustainability and social impact agenda for many overseas investors. Onshore, Africa's digital infrastructure growth remains appealing - making the region's private markets more attractive than ever.
Growing role of index providers in Africa's future
The inclusion and tracking of African securities in more major indexes, funds and ETFs transmits a strong signal about market performance, maturity and stability – and index providers are now the single biggest investment driver into Africa. More indexes, mutual funds and ETFs mean more passive investment options for investors seeking to maximize returns.
We’ve seen the power of indexes to transform markets before. In 2018, the inclusion of China A-shares in the MSCI EM and JPMorgan WGBI indices supercharged investment flows into China, channeling up to USD500 billion inn new, inbound investments. African markets appear to be beginning to benefit from enhanced visibility, transparency and trackability.
…and of wealth investors
Wealth investors are looking for alpha, causing private and retail markets to take off. Since our last survey, closed end funds and managed accounts have been the dominant growth story, growing by 9%. As institutional investors join wealth investors and increase their allocation to alternatives, we can expect that to continue.
The digital economy is still growing
Our 2021 prediction – ‘For Africa, the future is fintech’ – rings even truer today. At that time, North American portfolio managers had a strongly positive attitude to the digital sector.
Today, offshore investment is flowing into the booming digital infrastructure of a continent that is embracing telecoms, fintech and emerging technologies in order to leapfrog older modalities in finance or infrastructure.
This digital sector now accounts for 40% of offshore investment. That’s a trajectory we expect to continue.
Sustainability is a now foundation pillar for Africa
In parallel, sustainable investing is now responsible for one-third of African AUM.
As our last report highlighted, this shift is largely due to European investors who are subject to a plethora of recent regulations that demand meaningful and measurable portfolio allocations to sustainability and ESG.
The social impact of both traditional development and digital infrastructure in Africa, and the opportunity for yield, makes a compelling investment case for investors focused on positive change.