Naleni Govender, MD Head of Enko Capital South Africa

South Africans have historically been reliant on the local listed market for attractive long term returns and this has been largely driven by regulation.  When I started my career in asset management in 2004, the regulation 28 allowance for offshore was set at 15%. Fast forward 18 years to February 2022 and the allowance was increased from 30% to 45% including Africa.

Let’s be honest, we were indifferent for many years leading up to the amendments for offshore exposure as we were spoilt with double digit returns from an economy that was well positioned since 1994 elections as the “gateway to Africa”.  However, over the last decade or so,  we have seen our equity markets & the South African economy struggle and stagnate off the back of our own country specific challenges which have impacted economic growth.

To investors, this signals for the inclusion of alternative sources of return from both listed & unlisted markets  to diversify away from the risks we face within South Africa.  Whilst we wait for the SA Income turnaround story to unfold, investors must be prudent and continue to fulfil the long term return objectives of their investments.

Sub Saharan Africa – A source of uncorrelated alpha

For some reason, we as South Africans do not consider the rest of  Africa as emerging but classify it as a separate market from other emerging markets.  Whilst not comparable to the BRICS,  there is significant potential for Sub Saharan Africa ( SSA) to create value for investors in both listed & unlisted markets.

Whilst we may distinguish ourselves from the rest of Africa,  the rest of the world including the World Bank does not.  South Africa falls within the Sub Saharan Africa (SSA) block of countries. When reporting on the region, South Africa and Nigeria are highlighted as the 2 largest economies in the SSA region. The world bank has highlighted in their 2024 report that the region’s economic growth, whilst on a slow & steady upward trend is being held back by the underperformance of South Africa & Nigeria. Country specific factors including the structural inefficiencies in SA and the challenges in Nigeria’s oil sector have contributed negatively towards perception of SSA for foreign investment into the region, including South Africa.

Growth remains uneven across the continent and every region/country is diverse with its own unique set of risks & potential.  As South Africans & citizens of SSA, lets acknowledge that our growth and development impacts the countries/regions around us. We must also appreciate how strong growth from other African countries can have a positive impact on South Africa.    It is therefore important, when considering investment strategy and the effective use of the regulation 28 allowance that we include in the thought process, our purpose.  Aligning purpose (return outcomes)  to what society around us needs (growth & development) across SSA including South Africa will bring sustainable long term economic growth for the region and continent.

It is necessary that we give the rest of Africa the time & attention it deserves as this is a key lever to South Africa unlocking foreign direct investment into our economy with the understanding that we are part of a larger eco system. It is important that we consider  how we show up within SSA in order to attract investment into the region.  As a member of the BRICS economic block, lets leverage our position on the global stage to empower the region. It really is all about the WE.

I look forward to unpacking listed vs unlisted investments in Africa Ex SA in my next article.    In the meantime, the link below is a great source of information of the World Banks assessment of  SSA. Africa Overview: Development news, research, data | World Bank

ENDS