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Investing in High Growth Africa: iShares MSCI South Africa Index (ETF) (EZA), SPDR S&P Emerging Middle Est & Afrca ETF (GAF)

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Africa, the world’s poorest continent, is poised to grow fast in the decades to come. Some countries are finding ways to build more durable democratic institutions that can pave the way towards real development. War, famine and dictators are becoming a little less common. Not everything is shiny: people still struggle to make ends meet they way they do in China and India, but most Africans no longer fear a premature violent death and they can realistically hope their children will do better than them. Actually some numbers look impressive: between 2000 and 2008 secondary school enrollment grew by 48% and over the past decade HIV infections declined by 74% while life expectancy surged 10%. A booming economy has been behind such great development leap. Africa is the world’s highest growth continent. Real income per person has grown by 30% in ten years and GDP growth is expected to average 6% during the next ten years.

Credit: Africa by residentevil_stars2001Where in Africa

Democracies are more flexible political systems than authoritarian regimes. As a result, democracies tend to be less violent and less likely to end up in what is every emerging market investor hell: a messy revolution that brakes the rule of law. For this reason every time I consider Africa as an investment destination, I try to look for those countries that could establish stable democracies. Good examples of this would be countries such as Ghana, Senegal and Kenya. Even Nigeria (which, with its 165 million population, constitutes a huge market) can be considered a good example of African democratic development. The four countries I mentioned above have averaged a 2012 GDP growth of 5.9% and some of them -like Kenya- are real examples of capitalist development. If we are looking forward to invest in Africa we should look for companies operating within this emerging democracies.

The right investment vehicle

Unfortunately is not easy to find ADRs of companies operating exclusively in Africa (excluding some South African Companies). Nevertheless, there are some ETFs that contain some interesting African companies that could help us to benefit from Africa’s growth and development. Let’s review the three available options and see what is the one that fits our objectives best.

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