Illiquid markets in sub-Saharan Africa have potential

He notes that some 90% of all foreign investment portfolio inflows into sub-Saharan Africa go through the Johannesburg Stock Exchange (JSE) because other markets on the continent are not deep enough to support the large amounts of money involved.

"A characteristic of many illiquid markets is that they show the most potential due to economic growth that has been strong relative to developed markets. Although GDP growth has been driven mostly by demand for natural resources from other developing economies like China, other sectors have also contributed - notably wholesale and retail, agriculture, transport and telecommunications."

Opportunities are often overlooked

De Wet says that overall growth and changes in economic sub-sectors are creating business opportunities that are often overlooked by investors. While mineral resources will remain an important generator of wealth in sub-Saharan Africa, other sectors are also expected to come to the fore as countries rely less on exports and more on robust domestic demand.

Sustained economic growth over the past decade has seen the emergence of a middle class that currently accounts for about a third of the African population, according to a 2011 report by the African Development Bank. "Africans are also urbanising rapidly, making it easier for businesses to reach increasingly affluent consumers," says De Wet. "As a result, the region's fast-growing group of middle class consumers is a major attraction for investing in sub-Saharan Africa."

Political stability is an advantage

Other benefits include commodities and positive demographics, where the trend in terms of size and composition of the population is expected to be the same as that experienced in east Asian economies between 1960 and 1990 when most enjoyed strong growth.

"Another advantage of a growing, working age middle class is political stability. The big drop in political strife in Africa coincides with the rise in countries deemed democratic. On balance, we believe that sub-Saharan Africa offers potentially much higher rewards compared to developed markets over the years ahead. Investments in the consumer boom will do particularly well.

"In terms of accessing these opportunities, and given illiquid stock markets, prospective investors should consider private equity, particularly fund managers with on-the-ground experience in sub-Saharan Africa," says De Wet.