Emerging-market investing stories have tended to focus on the Far East or Latin America, but Africa is quickly becoming 2014's region to follow. As the continent passes its pre-recession investment levels and opportunities abound, the ambitious investor is left wondering: What is the best way to capitalize? Investing directly into African-owned enterprises can be intimidating, in the same way analyzing Chinese or Brazilian companies is a difficult and often treacherous task. Luckily, there are ways to benefit from the trend by investing in companies that are much, much closer to home. Here are some tips.
The concept of investing in Africa is hardly a fresh one, but it hasn't been the most popular strategy in recent years. Geopolitical issues and global recession hit the continent hard, and U.S. investors often simply don't know where to start. But, as reported this week by the Financial Times, foreign investment is set to hit a record in 2014, and it will likely go higher thereafter.
A few important things may surprise investors. For one, the largest economy in Africa is Nigeria's, at more than $500 billion in GDP (South Africa's is closer to $300 billion, for comparison). Rich natural resources and a large-scale build-out of infrastructure are driving more business into Africa -- particularly sub-Saharan Africa -- than ever before. There are plenty of African businesses available to U.S. investors via exchanges like the Johannesburg Exchange (the largest in Africa) or the Casablanca Exchange. However, navigating the tricky waters of foreign exchanges and understanding these stocks can be daunting to say the least.
But never fear, as there are ways to safely expose one's portfolio to what many are now calling "Africa Rising."
A couple of compelling options
Unsure where to start? Intimidated by the prospect of going deep into emerging-market territory? Check out a familiar business: Marriott International (NASDAQ:MAR). Marriott is putting tremendous focus (and dollars) on African development, mainly in sub-Saharan regions.
Earlier this year, Marriott leapt to the front of lodging-industry players clawing for African market share with its acquisition of Protea Hotels, a chain with more than 100 properties and 10,000-plus rooms in South Africa and other sub-Saharan nations. Given the tremendous amount of construction and the aforementioned infrastructure blitz, housing is often a hot commodity. Hotel chains are moving in fast to meet the demand, and Marriott has a great head start. The company is also further scaling its extended-stay product in nations with a high influx of workers, such as Algeria. Two brands, Residence Inn and Marriott Executive Apartments, are full-featured lodging solutions aimed at mid- and long-term business travelers. The latter brand has been looking to grow its presence by 50% over a four-year period ending in 2016, with new properties in Ethiopia and Saudi Arabia coming online.
Marriott's president of Middle East and Africa mentioned recently that the company has 25 Marriott brand hotels set to open in Africa over the next four years. Between the company's existing brands and the Protea acquisition, Marriott will be in 16 African nations by 2016.
Another great multinational player to look at is SABMiller (NASDAQOTH:SBMRY). Unsurprisingly, considering that it was founded in South Africa, SABMiller has a big footprint on the continent -- and not just on the supply chain end. In 2013, the company committed an additional $100 million to expand a brewery in Ghana, doubling its capacity. To underscore how important this is, consider that Africa is the fastest-growing beer market in the world, while the U.S. has seen declining demand for the big-name brews. The company is well aware of this trend: SABMiller invested another $100 million in a Nigerian brewery to double its capacity, and since then it has committed an additional $110 million to the brewery, aiming to grow capacity to three times the original number. All in all, SAB produces more than 3 billion liters a year in Africa.
SABMiller's African interests go beyond the beer industry as well. The company is the leading partner for Coca Cola's South African production and bottling efforts.
The company's inspiration for further investment is coming from a combination of the aforementioned influx of travelers and foreign investment, coupled with the rapid growth of a middle class in many African nations. A McKinsey study from 2012 noted that Africa's young and educated are concentrating in urban areas and creating a huge opportunity for consumer-facing businesses. As the population earns a greater discretionary income, consumption of soft drinks and alcoholic beverages only grows.
Currently, SABMiller controls 90% of the South African beer market. For the continent as a whole, SABMiller's African operations account for just 8% of the company's total volume and 11% of its revenue. There is plenty of room to grow in this extremely appealing market.
All in all, exposure to the big things happening in Africa is becoming a crucial element of an emerging-markets strategy. For investors interested in high-growth opportunities, now may be the time to get in before the story becomes too widely told.
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