What is the Best Strategy for Investing in Egypt, Nigeria, and South Africa?
Recently there has been talk of the emergence of smarter ways to capture beta in African markets, the major ones in question being Egypt, Nigeria, and South Africa. Here’s our take on the three largest forces we see disrupting markets in Africa for the better over the next 3 years and how to best gain exposure to them.
Higher Transparency and Reduced Risk
Blockchain technology has been around for quite some time but it has recently come into play as a driver of higher transaction transparency in Africa. By recording transactions in a format that is unchangeable, time-stamped, and able to be verified, Blockchain can help prevent corrupt transactions such as the sale of blood diamonds, voting inaccuracies, and disputes over land ownership. Decreasing political turmoil and corruption mean reduced risk for investors.
Metal and Mining
Over the last decade, China has been gradually assuming control of much of Africa’s mineral resources to fund its own economic development. In fact, in the decade between 2005 and 2015, China-owned projects in Africa increased from a negligible amount to nearly 120 (Basov, 2015).
As a result we may be ending the free market for certain metals. Chinese domination of the metal supply will mean a chronic shortage of strategically important materials such as rare earth metals which are used in defense technology. This put them in charge of price and supply of a critically important resource, and ultimately we may see China potentially becoming a stronger force geopolitically and that brings all sorts of consequences with it.
There is a proven lesson in financial history that we see repeating itself, and it involves Bitcoin. With the adoption of smart phones, Bitcoin is becoming a bigger part of daily life in Africa. As a result of having a digital currency to conduct online transactions, commerce across the continent is bound to become magnitudes more than it is today. Bitcoin transactions across borders are easier because of the lack of bank approval required as well as the elimination of the need to conduct a foreign exchange conversion. It also allows the parties to bypass any currency restrictions that a country may have put in place.
With capital now being available to economies that had been sidelined in the past from lack of access to mainstream banking, it’s likely we’ll be seeing new companies and new sources of capital markets. The universe of investment opportunities can only deepen as a result. Bitcoin may be the catalyst for active investing across the continent.