International Business : Africa, the Last Frontier, Draws Herd of Bullish Investors : Markets: Wall Street firms are setting up funds. Interest is driven by strong performance of nations’ stock exchanges.


Judith Aidoo remembers the time not long ago when talk about the virtues of investing in Africa was like trying to peddle a bitter pill.

“The perception was that Africa was a country plagued by many problems--certainly not a place to commit millions in investing dollars,” said Aidoo, a 31-year-old former Goldman, Sachs & Co. securities lawyer and founder of the Aidoo Group, a Wall Street-based investment banking boutique. Now Aidoo’s firm is besieged by inquiries about investment opportunities in Africa from as far away as Taiwan.

The investors are looking beyond headlines about turmoil in places such as Rwanda and Somalia. In fact, some specialists in emerging markets--poorer nations that are just beginning to modernize--are confident that Africa is the next and last frontier for investors.

“Markets everywhere have been conquered,” said Justin Beckett, president of the Durham, N.C.-based management investment firm New African Advisers, a unit of Sloan Financial Group. He said the investor interest is not social but economic. “There is nowhere to go but Africa.”


Even giant Wall Street firms are bullish on Africa. Morgan Stanley & Co.'s 50-page report on investing there says the continent “is poised for growth. Of its 50 countries, 28 have economic reform programs in place. Thirteen stock markets are up and running, with four more planned within the next two years.”

Morgan Stanley is putting money where its mouth is. The firm’s $200-million African Investment Fund went public on the New York Stock Exchange in February. Unlike regular mutual funds, these “closed-end” funds have a fixed number of shares that are traded on major stock exchanges.

“This investment is a reflection of our confidence in the long-term growth of Africa,” said Marianne Hay, who manages the fund for Morgan Stanley. “We see a parallel situation with the Latin American emergence in the late ‘80s.”

Other Africa-oriented closed-end funds have been established by Alliance Capital, Robert Fleming Inc. and Emerging Markets Management. According to the International Finance Corp., a member of the World Bank Group, it has received inquiries from 15 fund managers considering African funds.


Behind their interest is the dramatic performance of African stock markets. According to a second-quarter report on emerging markets compiled by Washington-based Kleiman International Consultants Inc., a group that monitors global emerging markets, most African stock markets went up by double-digit figures in the period.

“The growing number of funds targeting the region is a reflection of the strong performances of the stock exchanges,” said Elizabeth Morrissey, managing partner at Kleiman.

As with other emerging markets, Aidoo said, the attraction of Africa is the prospect of high returns for being an early participant in the market and diversifying a portfolio. Aidoo, who urges selectiveness, is bullish on Botswana, Ghana, Kenya, Mauritius and Zimbabwe.

And Thomas Herzfeld of Miami-based Thomas Herzfeld Advisers, an investment management firm that specializes in closed-end funds, said investors should be aware of the risks with country funds.


“In addition to normal risks, country funds come with political, currency and illiquidity problems,” he warned. “Country funds are OK for speculators. For those investing with their life savings, I suggest they look elsewhere.”

Another problem is that most country funds are the closed-end type. Since the funds trade on the stock market, that means investors must pay commissions on top of the managers’ annual fees. Also, the shares often trade at a price above the actual value of the stocks in the portfolio, which is like paying $11 for a $10 bill.

That doesn’t mean the premium has no value. A major problem in investing in Africa is the difficulty of finding shares to buy, according to IFC, which teamed with Emerging Markets Management to create the Africa Emerging Markets Fund. “In many markets, investors hold on to their shares and do not trade them,” said Teresa Barger, manager of IFC’s Capital Markets Division. “This is changing, however, as stock prices begin to go up, and there is evidence that foreign investment in an emerging market stimulates local interest in trading.”