Africa is quite a risky place to invest in due to variables like the instability of national governments, the frequent occurrence of military conflicts, and other factors that contribute to many countries’ economic downturns.
Notwithstanding, investors seeking exposure to under-developed economies should consider Africa a potential market. As they say, the greater the risk, the greater the rewards.
Below are seven tips for investing in Africa. These will help you regardless of your experience level, especially if you are a beginner.
1. Gather enough knowledge:
The first step to investing wisely is to have enough information. Uninformed investors always have a higher chance of losing their capital. When investing in Africa, the only way to get it right is first to understand the African market and economy.
For instance, Africa’s stock markets vary in their structure, and they require a high level of understanding to select an appropriate exchange. Always do due diligence first.
2. Decide on an investment approach:
There is no single approach to investing, and there are multiple ways to invest in Africa.
You can invest with ETFs, ADRs (for American investors), or Individual Stocks.
ADRs: ADRs (American Depositary Receipts ) are negotiable securities issued by a U.S.-based bank representing shares in a foreign company. It allows US citizens to invest in non-US companies, including African companies.
ETFs: An ETF(exchange-traded fund) is a type of pooled investment that track a particular index, sector, commodity, or other assets. They can be bought and sold on an exchange like regular stocks.
Some examples of ETFs are
- VanEck Africa Index ETF (AFK): This tracks the MVIS GDP Africa Index
- Global X MSCI Nigeria ETF (NGE): This invests in large Nigerian companies
- iShares MSCI South Africa ETF: This invests in large and mid-sized South African firms
Choose what works for you and start with it.
3. Evaluate the risk and reward ratios for each investment opportunity:
Every investment opportunity comes with a certain level of risk. You must evaluate and understand the risk level of each investment opportunity before diving in. It is always advised not to bite more than you can chew when it comes to investing; therefore, always go with a risk level you can handle. Consider the risk before the reward.
4. Start with small investments and increase them over time:
Getting started with investing is the hardest part, but starting small makes it easier. Many investors who go into Africa for the first time make the mistake of putting too much money into a single investment.
Ponzi schemes are typical anywhere in the world, including in Africa. Some of them are often hard to detect but to be on the safer side; it is advised to start with money you are willing to lose.
While it is tempting to put everything into one investment and build up your wealth quickly, this strategy will leave you vulnerable if things go wrong. Instead, take it slow and start investing gradually over time so that you can build up your wealth.
5. Keep track of your investment:
The instability in African states has led to notable volatility in the performance of investment funds based in those countries, even though some countries are less riskier to invest in than others. It is advisable to regularly review your investments to make sure you’re on track to meet your financial goals and that you’re comfortable with the investment risks.
6. Make sure to seek expert knowledge while experimenting with your ideas:
Now that you are considering investing in Africa, it is important not to rely only on what you know or your assumptions. Investors who invest in Africa must be aware of the risks involved and the currency fluctuations affecting international and emerging economies. An expert’s insights can be helpful in such situations.
Furthermore, before you invest in any business in Africa, you must collect reliable data and facts about the market. The same goes for investing in stocks, real estate, or agriculture. Seek expert knowledge, often for the data they possess. Data is key to making good investment decisions, and experts are usually good data sources.
7. Pay attention to demographic differences:
Investors should never assume that one African market is the same as all others. Even if they are geographic neighbours, each country is vastly different from the next.
Also, the legal systems of many countries are under rapid change, partly due to a desire to encourage foreign investment and a need to protect the rights and resources of a nation and its people.
Every investor should pay attention to these changes and differences while investing.
For entrepreneurs and investors, investing in Africa or anywhere in the world is an uncertain endeavour. The risk is high, and the rewards are uncertain, but it could be worth it if done right.