Why Invest in Africa?

December 30, 2010 · Print This Article

Jambo from Nairobi Kenya!

I’m so energized. I’ve been in East Africa for the past three days visiting tech entrepreneurs and tech investors.

While I spend about 95% of my working energy focusing on building iContact into a high-growth purpose-driven business, I like to take a couple weeks each year to travel and explore what’s going on with tech companies in other parts of the world.

This week I’m in Uganda and Kenya to find investment opportunities for the Humanity Fund, a personal investment fund I have for investing in African and American tech companies.

Why Invest in Africa?

There is so much economic opportunity in Africa, support for IT investment, and entrepreneurial energy. There’s an opportunity to make a lot of money investing in great companies while creating lots of jobs and doing a lot of good at the same time.

Africa is the least developed continent in the world. There are 1.03 billion people in Africa. Of this 1 billion (source) 65% of Africans live on under $2 per day (source) and 59% of African households do not have electricity (source),  and the number increases to 69% if you only look at Sub-Saharan Africa.

But Africa is no longer about famine, poverty, and war. That was the Africa of the 20th century. The 21st century Africa is about opportunity, technology, and entrepreneurship.

You may read about Sudan, Somalia, Zimbabwe, Eastern Congo, and the Ivory Coast in the New York Times and hear about these countries on the nightly news. But these are only five of the 54 countries in Africa.

The real, untold, narrative of Africa is what’s happening in the other 49 countries. Tremendous economic growth, investment, and rapidly rising living standards. What happened in South East Asia from 1950-2000 (rapid growth and poverty reduction) is now happening in Africa from 2000-2050. Most of the world just hasn’t realized it yet.

Why Invest in East Africa?

Here in East Africa (Kenya, Rwanda, Ethiopia, Uganda, and Tanzania) the GDP has grown at an average annual rate of 7.6% the last four years compared to just 0.5% for the USA. Africa will be the economic lion of the 21st century as McKinsey proclaimed in their July Report, “Lions on the Move: The Progress and Potential of African Economies.”

Take a look at these average annual GDP growth rates for 2006-2009 from the World Bank Development Indicators GDP database.

  • Uganda: 8.75%
  • Rwanda: 7.925%
  • Kenya: 4.375%
  • Ethiopia: 10.45%
  • Tanzania: 6.675%
  • USA: 0.5%

Uganda was the first country I came to in Africa back in 2008 and so I decided to start investing here in East Africa and expand later. I hope someday to run a fund making investments in high-growth socially responsible companies all over the developing world.

Investing As a Way of Making a Positive Impact

This is my third time in East Africa. When I came for the first time in 2008, I held the view that the way to best make positive change was to give money away to NGOs and non-profits.

I come now with the perspective that it takes all three sectors of society (government, non-profits, and for-profits) working effectively to create sustainable economic growth and that the private sector has a huge power to make positive change in the world.

The best way I believe I can contribute to positive change is to help high-growth companies that are creating jobs expand and create more jobs. At the end of the day, the cause of poverty is a lack of jobs and productive capital. Low education, low health care, and low nutrition are the symptoms of poverty, not the causes. If you increase someone’s income they can afford better education, health care, and food for their family.

So now, I believe the best way I can use my experience and resources to make an impact in reducing extreme poverty is to invest in high-growth companies that are creating jobs in developing world.

What I’m best at is figuring out how to grow technology and internet companies. Over the next two years I hope to invest in about ten more privately owned high growth African tech companies as part of dipping my feet into the water and beginning to create a model for eventually building a private equity fund some years down the road.

I hope to be able to eventually show that it is very possible to build a microequity investment firm that gets above market returns investing in high growth socially responsible companies in the developing world.

The field of impact investing is developing rapidly and I’m glad to slowly be learning about it. To learn more check out this Impact Investing Primer from the Rockefeller Foundation and this one from the Federal Reserve Bank of San Francisco.

Existing VC Funds in Africa

In my time here and in talking to people at the Skoll World Forum in April I’ve come across the following funds that are actively making venture capital investments in tech companies in Africa.

  1. InReturn Capital
  2. BusinessPartners Kenya
  3. TBL Mirror Fund
  4. eVA Fund
  5. Flow Equity
  6. FirstLight Ventures
  7. Humanity Fund
  8. Fanisi
  9. Grassroots Business Fund (non-profit fund)
  10. Acumen Fund (non-profit fund)
  11. RootCapital (non-profit fund)

A more extensive list can be found on the African Venture Capital Association (AVCA) web site. Other resources include the VC4Africa and BiD Network

How You Can Invest in Africa

If you want to invest in private African companies, then you could contact the above VC funds and express interest in investing as a limited partner in their next fund. They will likely require you to be an accredited investor and be able to invest $100,000 and up. You can also find private companies yourself and invest in them directly or join an angel network that invests in African start-ups like Toniic.

If you want to dip your toes into the water of investing in African companies without putting tens or hundreds of thousands of dollars at risk, you can invest directly into publicly traded African companies. There are even Exchange Traded Funds (ETFs) that allow you to get index-fund like exposure to African markets. You can invest as little as $75 in these funds through your broker or your TD Ameritrade, E*Trade, or Scottrade account and participate in the growth of the African economy.

You may want to check out:

  • AFK – The Market Vectors Africa Index ETF seeks to replicate the performance of the Dow Jones Africa Titans 50 Index. The fund represents a broad range of sectors and African countries, including exposure to some less traditional, frontier markets. Up 23% in 2010.
  • GAF – SPDR S&P Emerging Middle East & Africa ETF. Seeks to closely match the returns and characteristics of the total return performance of the S&P/Citigroup BMI Middle East & Africa Index. Up 22% in 2010.
  • EZA – South African ETF, up 29% in 2010.

You can also call your broker and ask them to invest directly in publicly listed firms on the Ugandan Securities Exchange or the Nairobi Stock Exchange.

For proper disclosure, as of this writing I do not own any of these ETFs but might in the future. I am definitely not a qualified securities advisor in any way and past performance is not necessarily indicative of future performance.

Thanks for reading. I hope you enjoyed this post! Please share and comment.

Next, I’ll be posting about the entrepreneurs I’ve met in my first three days here in Africa…

- Ryan, Nairobi, 30.12.10

Comments

14 Responses to “Why Invest in Africa?”

  1. Samuel Johns on December 30th, 2010 10:53 pm

    Hi Ryan,

    Very interesting post and insight into the African innovation environment.

    As you would know with growing iContact, talent and securing great talent can play a big role in the early stages of any venture. You mentioned that the GDP is growing at a rapid, however do you have any insight into the investments being made in talent development, either in tech or general education?

    Also, from what you have seen to date, what is the access to good quality talent like for young tech companies?

    Thanks for sharing your insights and thoughts.

    -Samuel

  2. Ben on December 31st, 2010 4:22 am

    Hi Ryan,

    Great to read of your findings in East Africa and I am happy to read you are as enthusiastic as the rest of us. May we guest post this for the rest of the community on VC4Africa? And possibly your postings still to come? Would be great to connect more people to your work.

    Speak soon and happy venturing!

    Ben

  3. Tom Minney on December 31st, 2010 10:56 am

    Well said Ryan, there is a lot to be cheerful about. On the private equity and venture capital side, my experience says you have to put management in as well as money. That’s why investments and capacity builidng for local PE managers is critical as they can pass that on to their portfolio companies. For the listed equities, you need to pick experienced managers with track record of success. One of the most exciting developments is the rise of social impact investing, which means doing what NGOs do, but doing it in a way that is driven by the logic of sustainability. Now that’s going to make a lasting difference in 2011.
    Oh and you can add East African Capital Partners to your list of tech VC investors in East Africa.

  4. Lilibeth Gangas on January 3rd, 2011 4:26 pm

    Def an informative post! When I visited the World Expo in Shanghai, the African countries were def the buzz and their projected growth is evidence. Thanks for the informative starting point for a future African investor!

  5. Roey Rosenblith on January 3rd, 2011 4:27 pm

    This has to be the most awesome post I’ve ever seen. My favorite part is though has to be the disclaimer on the stock. But still, I think I’m going sell a portion of my US shares and put them on the Uganda and Nairobi exchanges. A …good broker over here is:

    http://www.africanalliance.co.za/

    Also real estate is a great investment here. You should seriously consider the idea of buying some property in suburbs of Kampala, and I’m happy to act as your broker ;-)

    But overall what an amazing list of resources for people interested in the region.

  6. Timothy R Dykman on January 3rd, 2011 4:28 pm

    Thanks Ryan for your perspective and for the generosity to share this widely. Next you need to head to Moçambique!

  7. Abraham on January 4th, 2011 7:01 am

    Zimbabwe has more opportunities for those who are willing to go beyond the newspaper stories. The literacy rate is high and so is the warmth of the Zimbabwean. The work ethic is good and the infrastructure is not as bad as in other countries. Politically, we have challenges, but then who doesn’t? Come see for yourself.

  8. Grace on January 16th, 2011 1:08 pm

    Great to see the world is starting to realize about the other side of Africa! I own a land in Tanzania and would welcome any serious investor . Good article Ryan

  9. Irene on January 19th, 2011 8:12 pm

    I own 8 acres of land in Kenya, close to Nairobi the capital city. As a native, I am looking for serious investors in real estate development to create the much needed housing.

  10. Wesley ronoh on January 27th, 2011 8:51 am

    Great article! Confirms what most us have been witnessing as we travel around Africa esp. East Africa. Boundless energy and optimism. The innovations in Kenyan ICT sector is a must watch on the global stage.

    You migt want to check out this article as well.

    http://www.scidev.net/en/opinions/africa-s-informal-economy-can-boost-innovation-1.html

  11. Rebecca on February 6th, 2011 11:24 am

    Thank you for voicing your opinion on East Africa. I do have 15 acres in Kampala that need development. Any venture capitalists are welcome to discuss business. East Africa does have alot of potential and we need investors to move things forward.

  12. jamie on March 2nd, 2011 1:53 pm

    Hi Irene and Rebecca,

    I work for a property development company which partners with land owners to create real estate to combat the housing defecit in Kenya and Uganda.
    Right now we are working with various projects all over Nairobi partnering with land owners.
    If interested in getting your land developed, contact us on

    esem@wananchi.com

    Kind Regards
    Jaime Patel

  13. Nile Capital Management on April 26th, 2011 3:59 pm

    In addition to the ETFs you listed, we run an actively managed Africa-only Fund (NAFAX) which may be worth a look. Contact us for more information!

  14. Loyd on October 24th, 2012 5:48 pm

    Hey there just wanted to give you a quick heads up. The words in your article seem
    to be running off the screen in Opera. I’m not sure if this is a formatting issue or something to do with web browser compatibility but I thought I’d post to let you know.
    The design look great though! Hope you get the problem resolved soon.
    Thanks

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