Exploring a Third Way to African investment

Exploring a Third Way to African investment

Depending on who you ask, Africa is either a legacy of colonialism that will never reach its potential, or a land of rebirth finally emerging to take its place in the world.  Chairman of the Third Way Investment Group, John Oliphant, Executive Director of Third Way Investment Group and former Principal Executive Officer of the GEPF,  believes it’s the latter. As an investment professional, passionate about the future prospect of our continent, he makes it a point that to travel the length and breadth of the Africa seeking investment opportunities.

Sub-Saharan Africa is expected to deliver 3.5% real GDP growth for 2019 as estimated by the International Monetary Fund (IMF). South Africa is a laggard among these economies, with forecasted real GDP growth of 1.4% for 2019. Thus, looking up North of the country presents interesting opportunities for the Third Way Group.

Real GDP Growth in Africa

Unlike others who may pay lip service, Third Way has actually facilitated for its clients to gain exposure to growing opportunities on the continent. Through a strategic partnership with a property developer in Africa, Third Way has invested in retail properties in countries such as Mozambique, Zambia, and Nigeria. “In South Africa, due to the saturation of the property sector with limited opportunities for above average returns, we have launched a specialised property fund (Boxwood Property Fund) which recently made strategic acquisitions in the CBD of Cape Town for redevelopments. Other sectors of focus for the group is investments in infrastructure and healthcare. After the launch of two South Africa focused funds – that being the Third Way Core Plus Infrastructure Fund and the listed Healthcare Fund – we will be looking at launching similar propositions with a Pan African focus,” explained Oliphant.

Formalising the economy

A question that continues to emerge is whether there are in fact opportunities for South African entrepreneurs on the African continent, apart from the usual investments like infrastructure and investment? Since Africa has a massive informal sector, Oliphant is confident that there are numerous opportunities still waiting to be explored. “Most economies on the continent are informal. There are lots of informal traders and so on and I think it could only benefit the continent if we find ourselves in a position where most economies on the continent are formalised. Without a doubt this can help African governments in terms of tax collection,” Oliphant said.

He also believes there are huge opportunities for co-investment and collaboration through appropriate investment vehicles for sub-Saharan African institutional investors such as pension funds. Oliphant highlighted that the formalisation of most African economies has been positive for the growth of the retirement industry in Sub-Saharan Africa. As at 2014 the assets totalled US336 billion, excluding voluntary savings – this is according to a study by RisCura. Here Oliphant pointed us in the direction of institutional capital. “If you look at institutional capital, one of the issues that I want to drive in 2019 is to get African pension funds to collaborate on infrastructure investments across the continent. One can see that there’s an increased appetite. So, how do we get all those pension funds to invest in, what we call, an ‘inter-country infrastructure’ in order to connect them and make it more efficient to move goods, travel between all these countries and increase access to services?”

It’s my culture

South Africans have been accused of not having a culture of saving enough and that may extend to the continent as a whole. Oliphant pointed out that many people do not have formalised jobs which makes it difficult to even make ends meet. However, there are already encouraging signs. “Nigeria is one of the fastest growing pension markets in Africa because more and more people are getting into formal employment and more people are saving through their retirement fund. However, if you operate in the informal economy where you’re an entrepreneur and you’re trading goods at taxi ranks, the whole concept of saving becomes foreign to you because you’re just raising capital to meet your current needs,” he explained.

Another stumbling block, Oliphant believes, is that investing in markets is portrayed as something only for experts. Oliphant uses his own mother as an example. He questioned the returns she was getting on a 32-day call account when there were numerous other ways to grow her money. He does feel though that this won’t be a problem for the current generation who’ve grown up with technology. “I think for the much newer generation it’s all about finding ways to use apps to make saving quite simple and attractive. In fact, I’ve seen a few companies, such as Easy Equities, that have found innovative ways to attract new generation of investors,” Oliphant said.

The many faces of investment

Oliphant admits that investment for the younger generation now has a far different face to that of his parents’ generation where apps and financial portfolios were almost non-existent. “I actually think for my parents I’m the best investment they’ve made. They couldn’t have invested in anything other than my education. It’s paying dividends today as I am taking care of my parents so, from an investment point of view, I think the older generation capitalised on investment in a different but equally beneficial way,” he said with a smile.