Construction & real estate among key investment opportunities in Africa

A report recently issued by Invest AD explores institutional investor intentions in Africa to 2016.  The report, written by the Economist’s Intelligence Unit, notes the shifting perceptions regarding investment in Africa and highlights promising signs, both politically and economically.  The report summarises findings from a global online survey of 158 institutional investors, during August and September 2011.  Respondents range from insurance and pension funds through to private banks, wealth managers, hedge funds and mutual funds.  About half of respondents have up to US$499m under management, while another 22% have at least US$10 billion under management.  The survey findings were tested during in depth interviews with experts and senior executives in the field.

The key findings are summarized in the introduction to the report.  Overall, two thirds of investors said that investment in Africa offered the greatest potential of all frontier markets globally – Ghana in particular is expected to grow by the most in the next year.  Given this, all of those surveyed said they expected to have some exposure to Africa.  One third of respondents said their exposure in Africa would grow to at least 5% of their fund value.  The majority agreed that long-term strategies were more appropriate.

Perhaps most interesting in terms of the growing housing sector, is investor interest in the emerging middle class, and an acknowledgement that this population will have a significant impact on the growth of African economies.  Investors were asked to choose three sectors from a list of 19 that they thought would offer the best prospects for investment returns over the next five years: a third of respondents (34%) chose construction and real estate, another 34% chose financial services.  These two sectors were ranked third and fourth after energy and natural resources (chosen by 46%) and agriculture and agribusiness (chosen by 35%).  Investment opportunities in private equity, infrastructure, and real estate were all seen likely to grow over the next three years.  Bribery and corruption was the most oft-cited barrier to investment, followed closely however by weak institutions and illiquid capital markets.  Three quarters of respondents agreed with the statement that “the development of capital markets in frontier Africa will help to address broader societal needs, such as poverty”.