The African Continent is home to more than 1 billion people. And with a growing middle class in several countries, along with increasing free markets and more transparent governments, Robert Scharar sees the continent as full of investment opportunities. Scharar, a senior portfolio manager for Commonwealth Africa Fund says the fund looks at publicly traded companies that are started in and are based in Africa. “We decided to do is do a fund that tends to buy stocks in what we believe is the African story and future and buy companies that would benefit from that,†he says.
BLACK ENTERPRISE spoke to Scharar about investment opportunities in African countries. Here’s what he had to say:
BLACK ENTERPRISE: What industries do you see the greatest upside potential on the continent?
Robert Scharar: What we see in terms of some of those opportunities start with things such as financial services. It may be paying your bills with a smart phone for example. It’s just amazing the leapfrog of technology in Africa and people use phones for a lot of things more so than we do in the US but certainly at the same level. The financial service industry which really involves providing insurance for people and it also involves banking services, retirement plans. So, we’re looking for companies in this sort of I’ll call it the financial sector of the financial market place.
The second is in goods and services. There’s a reason the Wal-Mart recently invested in Massmart in South Africa and that is that they recognized, in my opinion, there is a huge consumption potential in Africa for basic services and goods. So, companies like Massmart or Shoprite Checkers — anyone that supplies consumer goods and services of that sort. Companies that are involved in the infrastructure sector that could be in communication, it could be in construction, building utilities, providing utility services. All of these are the infrastructure; those are all good opportunities to invest in. Production of transportation you know all of these goods and services have to move around the continent. And there a number of companies that are doing that port services, trucking transportation.
So, those are the industries you like. What are the countries where you see the greatest opportunity?
Well from a stock exchange perspective I think it’s clearly South Africa has a lot of opportunities associated with it because they are exporting their goods and services throughout the southern region in particular. But we’re seeing South African businesses even going broader than that. Stock exchanges that are beginning to emerge in regions, I think the Sadak region which includes places like Tanzania and also Mozambique,
Zambia and Malawi there are some opportunities within those countries and Zimbabwe, which still is a very difficult place to invest from a public perspective. If you look at where it sets geographically, when Robert Mugabe is finally out of power, unless when somebody worse than him comes in, I think that’s going to be a huge uplift to the region. Because it’s a centerpiece, you know it borders on Zambia. You’ve got Mozambique on one side of it, Botswana. So, it’s really a situation where in South Africa a lot of countries that would benefit from Mozambique and Botswana opening up. So, I just think these countries in the Sadak region have a lot of potential.Why would somebody invest in Africa versus some of the “better known†emerging markets — the BRIC countries?
You know one of the things is that people forget you know Africa is a huge continent. With an immense population and as the GDP of that regions increases and flows through the buying power of those people are going to increase dramatically. So, I think you really have to look at the continent from it’s opportunities in terms of size and market share. It’s a huge region and you’re seeing fairly quick growth in the standards of living. I think, in many respects, the risks
are less than other markets to go into. So, if you’re going to into an emerging market because you believe growth is a good potential they have it. They have water power there in a big way in many parts of the continent. They have the ability to grow a lot more in agricultural production with just minimal changes in the agricultural process. They have the ability to export those products. And so I just think it’s a good opportunity with the large number of people involved in the continent and the increase of consumption power.There is still you a lot of crime in these countries, no? As well as certain areas of political instability.
Yeah. I think there’s where you have to step back and distinguish between the continent and the country. There are clearly countries that have a lot of issues and we know those because they get played out on the news every night. I’ve been going to Malawi for example for 16 years. My children have been there, my family. It’s like anywhere else obviously there are some areas that I would be cautious of going to at certain times of the day and alone or something. We are seeing success stories with government changes. Senegal is a prime example, the most recent election, the change in
government, the additional transparency. Malawi, the former president passed away. He had become a little more dictatorial. He was an elected official, succession happened, and the vice president who succeeded him wasn’t in his party. But it all went through peacefully and the country is moving forward now.So, why is it that you hear so much about the BRIC countries but not about the opportunities in Africa?
There is some bias or misconception or lack of understanding of Africa in the part of Americans. And I think it comes from a couple of forces. With one segment of America I think it’s burdened with a certain amount of guilt feelings towards the continent or it dates back probably to you know the slavery issue and everything else. And if you look back you know most everyone in America thinks that everybody in Africa is in impoverished, they cannot feed themselves. Look at the images we see. Many of them are well intended but to raise funds and they don’t get to meet the young people that I meet at the universities there that are going to school and dream of a better tomorrow. They don’t get to meet the people that are running the companies locally and that are from there and they are educated.