In the continent, it's a buyer's market

Having invested massively in energy, mining, construction and manufacturing, China should now expand its investment to African bourses

Over the past decade, Chinese companies have become major investors in Africa, with key interests in energy, mining, construction and manufacturing.

China has been Africa's biggest trade partner since 2009. Bilateral trade stood at $11 billion in 2000. By 2006, this figure had jumped to nearly $60 billion; in 2013, it soared to $210 billion.

Chinese investment in African countries has also risen thirtyfold in the past 10 years. Foreign direct investment went from $500 million in 2003 to almost $15 billion by 2012.

In an effort to strengthen the relationship with Africa, Premier Li Keqiang last year visited Ethiopia, Angola, Kenya and Nigeria, where he pledged $12 billion in development loans and signed 60 agreements to invest in regional energy and infrastructure projects.

During his visit to Kenya, he said China had offered a $3.8 billion loan to build a standard gauge railway link between the Port of Mombasa and Nairobi. Later sections of the line would link Kenya with Uganda, Burundi, Rwanda and South Sudan, increasing intra-regional transportation networks and trade crucial for the continent's economic growth.

The $12 billion in credit adds to the $20 billion in loans that then president Hu Jintao promised to African nations in 2012.

Li has said that between 2014 and 2020, trade between China and Africa will double and that Chinese outward foreign direct investment (or the total accumulated value of assets) to the continent will quadruple to $100 billion.

Chinese OFDI flows (the amount of investment in a given period) to Africa increased from $317 million in 2004 to $2.52 billion in 2012. Though traditional OFDI sources like the United States and Europe still compromise the majority of investment in Africa, China's contribution is steadily increasing.

Judging from the aforementioned investments, it's obvious that Africa has been an investment destination for China due in part to its impressive economic growth. Over the past 12 years, Africa has been growing economically by 5 to 6 percent a year.

This growth has been attributed to a boom in raw materials and the steady expansion of the continent's middle classes, combined with a positive change in its politics. Plus, sub-Saharan Africa's once rampant inflation rate of 40 percent has fallen to 5 percent.

Having invested in a big way in energy, mining, construction and manufacturing, Chinese should now spread their investment wings to African stock markets.

Over the past four years, Africa's equity markets have attracted a lot of interest, with investors lured by the sub-Saharan region's GDP growth rate. Nigerian and Kenyan markets rose by more than 50 percent in 2012.

While it's predicted that by 2020 more than half of African households will have enough income to spend some on investments like stocks, Africa is short on savings and capital. This creates an opening for rich world investors seeking a better return than is available at home.

Africa is in need of an extra $90 billion a year for infrastructure alone, according to the World Bank. The continent is expected to have the largest global workforce by 2040. Its young adult population will be a boon for companies making consumer goods because they target a largely underserved population.

According to a T. Rowe Price analysis of International Monetary Fund data, Africa will be home to eight of the 10 fastest-growing economies in the next four years, making it an interesting investment destination.

While South African, Nigerian and Kenyan markets provide a wider selection of investments, Africa's smallest countries are the ones posting the biggest gains. Stock exchanges in Tanzania, Malawi and Rwanda have all risen by at least 11 percent since the start of last year

The real source of excitement in investing in Africa's stock market is sub-Saharan Africa, which is recognized as a "frontier market".

A handful of big consumer firms in Nigeria for a long time, such as Unilever and Nestle are listed locally, meaning investors can take advantage of the country's potential return on investment with established companies that have strong corporate governance and transparency.

This is in addition to UAC, a food company with interests in paint and property that has doubled in value in the past year. Beer companies are another way to gain exposure to the African consumer. Nigerian Breweries makes Star Lager and Legend Extra, a stout for those who think Guinness lacks punch.

East African Breweries, listed in Nairobi and co-owned by Diageo, has similar appeal. Its combined market in Kenya, Uganda and Tanzania is more than 120 million people, not much smaller than the Nigerian market.

Shoprite, the largest grocery retailer in South Africa, is growing beyond its home base and in a few years, it might similarly qualify for inclusion as a frontier investment. The next largest exchange is in Zimbabwe.

All this growth potential presents a lucrative investment opportunity for Chinese investors. Having already tested the investment climate in Africa, Chinese investors should confidently put their money in African stock markets because growth potential is evident.

The writer is an investment analyst and writer. The views do not necessarily reflect those of China Daily.

(China Daily Africa Weekly 02/13/2015 page9)