Francesca Bausang from BMI Research illustrates why, despite a challenging macroeconomic environment, there are many compelling investment opportunities in a variety of sectors across Sub-Saharan Africa (SSA). This article identifies the most resilient economies and the six most attractive sectoral opportunities across leading SSA economies. These include gas-fired power and infrastructure in Côte d'Ivoire, mobile financial services across the region, except Angola and Ethiopia, and pharmaceuticals/healthcare in Ethiopia.
"Côte d'Ivoire, Ethiopia, Uganda, Kenya and Tanzania have less exposure to the commodity slowdown and the latter is offset by strong reform momentum, infrastructure investment and/or economic diversification. Among these countries, our strongest conviction picks from a macro perspective are Côte d'Ivoire and Kenya. We expect Côte d'Ivoire's real GDP to grow by 8.7% in both 2015 and 2016. Investment into major infrastructure projects such as the Abidjan container terminal and a new regional rail network, and the ongoing resurgence in the oil sector, will cushion the commodities blow.”
A tense security situation continues to depress the tourism sector in Kenya, but the tertiary sector remains a dynamic growth engine with second-round effects in the form of credit expansion. Indeed, the mobile banking revolution has created credit options, which open up a whole new consumer market and should provide a long-term engine of growth. Mobile banking is also contributing to the financialisation of the economy through the issuance of a mobile banking bond. On October 16 Kenya launched the world's first treasury bond offered exclusively through mobile phones. The so-called M-Akiba bond is a step towards a) helping to encourage savings and strengthening purchasing power/insulate households from inflation b) helping to deepen and widen Kenya's capital markets, opening up a new source of financing for the government and potentially companies.
If overall these economies are going through a tough year, there are still many long-term sectoral opportunities on offer:
1) Oil Exploration & Development in Senegal
Senegal has emerged as a bright spot in West Africa, due to the mix of its high prospectivity below ground, as per recent deep-water discoveries, a supportive fiscal and regulatory framework and broad political stability. This will create opportunities in both the oilfield services and infrastructure sectors.
2) Gas-Fired Power in Côte d'Ivoire
Domestic sources of gas coupled with a strong project pipeline of efficient combined cycle gas turbine projects, and a business friendly operating environment will support gas-fired power expansion and the entrance of private investors over the next 10-years.
3) Infrastructure In Côte d'Ivoire
Côte d'Ivoire's attractive public private partnership (PPP) investment profile and operating environment make it one of our top performing infrastructure markets in terms of growth and investment over the next five years. A number of PPPs signed over recent months will not only support growth in the construction sector, but also build the market's reputation as a safer investment destination.
4) Mobile Financial Services (MFS) in all of SSA except Angola and Ethiopia
The outperformance of operator-led MFS is due to the much lower barriers to access for consumers: mobile networks reach a much larger segment of the population than brick-and-mortar branches, while the high volume means operators can charge much lower rates and set lower minimum transaction values, in line with the needs of the majority of African consumers. Mobile operators have reported accelerating take-up of MFS in 2015, with consumers becoming more familiar with the services, and with MFS platforms becoming more sophisticated, and offering cross-border remittances, savings, loans and merchant payments, on top of basic peer-to-peer transfers.
5) Oil production in Angola
Angolan oil output is set for strong growth over the next five years, despite the sharp drop in global oil prices. New production and midstream infrastructure will be needed to support the increase in output, and with the bulk of new production concentrated in deepwater and technically challenging places, growth will be heavily services-intensive.
6) Pharmaceuticals and Healthcare in Ethiopia
Ethiopia represents an emerging opportunity for investment within the pharmaceutical and healthcare industry, in view of its sizeable population, rapidly growing economy and stable political environment. The country has huge untapped potential and the main drivers of expenditure growth include the large burden of communicable diseases, rise of non-communicable diseases, ageing population, increasing urbanisation and rising income levels. Ethiopia's government is proactively promoting the development of the pharmaceutical and healthcare sectors and is facilitating foreign direct investment.
Francesca Beausang - Head of Africa Research at BMI Research
BMI Research provides macroeconomic, industry and financial market analysis across 24 industries and 200 global markets.