Africa may not be the first continent that comes to mind for investing in emerging markets — but given its vast potential, maybe it should be.
That’s the main message of MiDA Advisors, a global advisory firm specializing in institutional investments and trade in Africa and other emerging markets.
“It’s already a $4 trillion market and one of the fastest growing regions in terms of growth,” said MiDA’s chief executive Aymeric Saha. “As the global population is increasing, it is more Africans being added than any other region. Demographically it’s going to be a region that we just cannot ignore.”
This week the Biden administration held the U.S.-Africa Leaders Summit, which gathered leaders from U.S. and international pension funds, family offices, and sovereign wealth funds, among others. The agenda was partly to build confidence for U.S. investors who are unfamiliar with the opportunities that lie in the region.
The housing sector, for one, remains one of the most attractive areas largely due to the market’s low default rates, according to Saha. With support from the U.S. government, MiDA recently partnered with Prosper Africa to advance investments in the sector.
“The performance in the housing sector is spectacular,” he said. “And our goal is to hope that as U.S. investors get more familiar with these assets on the continent, they see the track record over time and they will get more comfortable investing in the region.”
According to Saha, Africa is increasingly becoming a critical player in the race to net zero, thanks to its population, infrastructure, and resources. South Africa for its part is now transitioning away from coal and power plants and moving into renewables, which has already seen a successful track record.
“The power sector in Africa has done well; investors have made significant money in this sector in Africa because of the need,” said Saha. “It has very low access to power right now, and with such tremendous needs across the continent, they will pay for the power.”
The continent is also home to the raw materials that will be needed to power a greener economy, including those for batteries that store renewable power. “To develop these renewable systems, we are going to have to depend on Africa to provide those raw resources,” said Saha.
With the continent also boasting the biggest mass of arable land, the agricultural business should be another key area for investments, which will not only benefit Africa’s growing population but could strengthen global food security.
“There’s tremendous need for more agribusiness around the continent. It’s a continent that is the poorest on the planet and therefore the needs are to manage across different asset classes,” said Saha. “For institutional investors that are investing for the long term, it’s very important to tap into the opportunities in this new growing continent.”
Apart from offering specific investments and themes, Africa can also serve as an important diversification tool, Saha argued.
“[Africa] has lowest correlation to developed markets,” he said. “It makes a lot of sense to put even just 1 percent in a market that is so uncorrelated to what is happening in developed markets. It makes a lot of sense, not only for impact, but also for the opportunities for enhanced returns.”