As Africa’s frontier markets develop, some of those economies are growing into the next generation of so-called African lions that could follow the path of the Asian tigers of the 21st century, potentially providing exchange traded fund investors an attractive growth opportunity.
ETF investors can gain exposure to the broad African equities market through the Market Vectors Africa Index ETF (NYSEArca: AFK), which includes exposure to countries like South Africa 20.2%, Egypt 18.6%, Nigeria 16.0% and Morocco 6.8%. AFK is up 7.2% year-to-date.
Alternatively, investors can also consider country-specific ETFs for Africa’s largest markets, including The iShares MSCI South Africa ETF (NYSEArca: EZA), Market Vectors Egypt Index ETF (NYSEArca: EGPT) and Global X Nigeria Index ETF (NYSEArca: NGE). Year-to-date, EZA is up 8.7%, EGPT jumped 30.8% and NGE dipped 3.1%. [Egypt ETF Dodges Market Demotion]
McKinsey & Co projects that Nigeria’s economy could potentially expand 7.1% a year through 2030, putting the the country among the world’s top 20 economies, Bloomberg reports. [Nigeria ETFs Get a Lift From Frontier Index Changes]
The continent enjoys vast untapped resources, a young demographic and rising middle class.
“Africa has come a very long way from its era of aid-dependence,” Sim Tshabalala, co-chief executive officer of Standard Bank Group Ltd., said in the article. “The rapidly emerging middle class in Africa is driving large-scale diversification of Africa’s economies, which offers immense opportunities for companies willing to invest.”
Moreover, African countries are improving their quality of life. For instance, the average life expectancy has increased to 58 in 2011 from 37 in 1950, primary school enrollment rose to 77% in 2011 from 52% in 1990, and governance has improved in 46 of 52 countries in the 13 years through 2013.
“There’s nothing to stop Africa from benefiting from the reforms that we’ve seen, to capitalize on that going forward, do more and become a stronger, faster-growing, more inclusive region like Asia,” Stuart Culverhouse, chief economist at Exotix Partners LLP, said in the article.
However, as a frontier market locale, the countries still suffer from significant risks, such as rampant poverty and inequality, a spike in militant violence and inadequate infrastructure.
For more information on Africa, visit our Africa category.
Max Chen contributed to this article.