Investment opportunities and risks in African markets

“The reason that everybody likes planning is that nobody has to do anything,” according to former California governor Jerry Brown. While numerous plans and commissions have been initiated to stimulate the South African economy and create jobs, the country remains in a low-growth rut. This stagnation is often attributed to internal bureaucratic inefficiencies, exacerbated by external economic factors, such as global market fluctuations and geopolitical tensions.

Investment managers looking to fulfil their fiduciary duty and meet their clients’ needs for returns are increasingly diversifying into several exciting opportunities outside SA. The rest of Africa may not be considered an easy destination to do business, as evidenced by the ongoing retreat of a number of large multinationals and South African businesses. However, many African countries have a clear vision for their economic growth, with certain sectors and nations carving out niches that present formidable challenges to what SA can offer. For example, Mauritius has developed a strong financial sector, and Nairobi is emerging as a hub for information technology and innovation.

Adapting to global market changes
Trade in the Global South traditionally relied on primary product exports, such as minerals and agricultural products. However, these economies have evolved rapidly and become more sophisticated consumers and traders. The events of the last few years – and even the last few months – are creating a new and more promising landscape for private investors in Africa.

In the short term, global upheavals in longstanding trade relationships arising from policy shifts under US President Donald Trump, present a timely opportunity for the continent to reassess and redefine trade agreements, supply chains and economic policies. Currently, intra-African trade accounts for a dismal 15% of total trade, highlighting the need for improvement.

SA’s presidency of the G20 this year offers a platform to engage with the global powers to address some of the continent’s challenges and ensure that consolidated G20 initiatives prioritise investment in infrastructure. The B20 can be a catalyst for co-operation between the public and private sectors to make projects happen and find innovative funding solutions. For example, there are public-private partnerships in African Continental Free Trade Area (AfCFTA)-driven logistics hubs, which present opportunities in construction, logistics technology and joint ventures.

In the longer term, the global transition to green and sustainable investments is accelerating, attracting investment towards opportunities in renewable energy and technologies that support this transition. Climate change is creating a need for agri-tech innovations such as precision farming, vertical farming and AI-driven crop management, as well as alternative protein production and regenerative agricultural practices. SA leads the continent in these areas, with other nations making significant progress.

How do we assess the opportunities?
There is no shortage of potential investment targets on the continent, and financial markets and systems are slowly evolving to address the needs of the private sector, rather than government and development finance institutions.

In Africa, our investment strategy focuses on both deep and liquid markets with diverse opportunities, and nascent markets, where we are restricted to government-issued instruments and non-market investments. We aim to play a role in growing the capital markets in the African countries where we have chosen to invest.

Assessing investment opportunities in Africa demands a strategic and multidimensional approach, balancing economic potential against structural risks. Several critical factors shape the investment landscape, influencing both market stability and long-term returns.

Governance and regulatory frameworks remain paramount. Investors must operate within jurisdictions where legal systems are transparent, enforceable, and aligned with global financial standards such as those established by the International Swaps and Derivatives Association (ISDA). A robust judicial infrastructure ensures recourse in the event of disputes, fostering investor confidence and safeguarding capital deployment.

Equally important is the presence of technical expertise and professional acumen. Markets require qualified custodians of securities and investment professionals who adhere to globally recognised standards, such as the Chartered Financial Analyst (CFA) charter. Effective regulatory oversight necessitates competent authorities with expertise equal to, or exceeding, that of market participants. Encouragingly, Africa continues to benefit from the cyclical migration of skilled professionals to major financial hubs such as New York, London, and Johannesburg, with many returning to their home markets, thereby enriching local expertise.

The sophistication of capital markets varies significantly across the continent. Fixed income instruments, predominantly government bonds, are well established, whereas equity markets remain in varying stages of development. Risks such as capital flow restrictions and foreign exchange shortages demand careful management, as they can impede liquidity and limit cross-border investment flexibility.

Diversification remains an essential pillar of risk mitigation. Investment managers must allocate assets strategically across multiple classes and currencies to insulate portfolios from macroeconomic volatility. While bond markets provide relative stability, African equities require further maturity to achieve broader institutional adoption. Additionally, currency diversification remains a vital tool against systemic financial shocks, as currency crises often affect multiple nations simultaneously despite distinct underlying causes.

The role of systems and technology in market infrastructure cannot be understated. Many African countries have integrated trading and supervisory platforms modelled after developed economies, yet localised adaptation is often necessary. Imported financial systems may not always align with the unique conditions of emerging economies, presenting affordability and implementation challenges. Ensuring access to robust technological frameworks will be instrumental in enhancing market efficiency.

All these risks are manageable but are nuanced and need close attention. They are considerations worth taking to tap into the vast opportunities that are slowly emerging on the African continent.