Poor capital market infrastructure and limited liquidity in African companies are larger concerns for institutional investors already investing in the continent than fears about bribery and corruption, a survey by Middle Eastern investment asset manager Invest AD along with the Economist Intelligence Unit has found.
Invest AD said although investors who did not allocate to the region were mostly concerned about perceived problems with bribery and corruption, those who already invested in the continent considered it a lesser problem.
Only a third of investors already allocating funds to Africa considered bribery and corruption as the major obstacle to accessing companies in the region, compared to 64% of those not yet invested there.
Across the board, illiquidity in African markets was cited as the third biggest hurdle to investors, beating concerns over political risk.
“Investors already in Africa are more worried about a lack of liquidity, trade execution by institutions in the region, and the local regulatory environment than the perceived risk of corruption, which is the main concern to investors new to the region,” said Robert Mitchell, contributing editor at the Economist Intelligence Unit.
Mitchell said better cooperation and integration between exchanges on the continent would help open up markets to new investors, who were growing ever-more confident about Africa. The survey showed that institutional investors were keener on Africa than any other frontier market.
Of the 158 investors surveyed in August and September last year, 21% had no current exposure to Africa, but only 1% said they would remain outside of the content in three years’ time. By the end of 2016, every investor said they would have entered the continent, with over a third saying they would have allocated more than 5% of their total assets to African companies and projects.
“Technically, these markets are still some time away from European standards, but they are progressing more quickly than people think,” said Mohammed Al Hashemi, head of asset management at Invest AD.
Al Hashemi said African market participants and regulators were willing to learn and adopt practices that had been implemented elsewhere, including other frontier and emerging markets, that had followed the same path.
“In this case, history does repeat itself and they can overlay the benefit of hindsight,” he said.
The survey was conducted with institutional asset owners with assets ranging from multi-million dollar to multi-billion dollar portfolios.
Reporting by Elizabeth Pfeuti, European editor, aiCIO, an Asset International publication