I spent most of my twenties in Africa. Straight out of my graduate degree at the University of Sydney in Australia, I was recruited by Nestlé headquarters in Switzerland. I lived there for a while and was then expatriated to beautiful South Africa
There, I spent four years working for the ice cream business in various marketing, strategy, and sales roles for the South Africa, Botswana, Namibia, Lesotho and Swaziland markets, with the occasional field trips into other Southern African countries.
It was an amazing experience. After these four years, I asked to stay in Africa. I was promoted to the executive board of Nestlé Ghana in charge of the dairy business for Ghana, Ivory Coast, Liberia and Sierra Leone.
My twenties were intense, fun, and I learned a lot about operations in some of the world’s toughest frontier markets.
This is why I particularly enjoy my interviews with Tim, an Australian based out of Tanzania who manages a fund specializing in African frontier markets (Africa excluding South Africa and North Africa).
In this video we discuss all the markets he is invested in.
At the end of the day, investing in such African markets is very uncorrelated to the rest of world.
- Tim has a newsletter on his trips around Africa
- He has a (more active) Telegram channel
- You can reach out to him: tim@africanlionsfund.com
If you prefer to trade yourself, unfortunately, my favourite broker IB does not offer the opportunity to trade on these exchanges. None do. You typically have to open an account locally in these countries.
To a World of Opportunities,
The Wandering Investor.
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Transcript of “Outlook for investing in African Stock Markets in 2024”
LADISLAS MAURICE: Hello, everyone. Ladislas Maurice from thewanderinginvestor.com. Today, I’m really excited to be talking to Tim Staermose, who manages a fund specializing in frontier African stock markets. Tim, how are you?
TIM: Good. Thank you, Ladislas. It’s nice to be back talking to you.
LADISLAS MAURICE: Yeah. Tim, your fund is very unique in the sense that it focuses on Africa, excluding North Africa and excluding South Africa, so you really focus on all the frontier markets right there in Sub Saharan Africa. And you have about $23 million under management. And can you tell us a little bit about the past few years, just for 30 seconds, to get an overview? And then we’ll be discussing the outlook for 2024 for all the main markets in that part of Africa.
TIM: Sure, yes, that’s right. I started the fund during the COVID time in 2020, and started investing capital here in Tanzania, where I’m based, on October 1, 2020. We had a decent few months for the final part of 2020, where we were in existence, and then we had a pretty good 2021. The fund, I think, was up over 15% for that year. And the last couple of years as well we’ve made money, in US dollar terms, after all fees, we were up 5.2% last year, and in total, the fund has been up 43.7% IRR since inception, that’s in US dollar terms after all fees and expenses. So it’s been a pretty good journey, even though the times have been rather challenging in Africa, which we can get into.
LADISLAS MAURICE: Cool. Look, this is a topic that I find absolutely fascinating, having lived and worked myself in various parts of Africa for seven years. I actually spent most of my twenties in Africa.
Investing in the stock market in Tanzania in 2024
LADISLAS MAURICE: Let’s discuss your main markets, from big to small, in terms of your allocation, the first one being Tanzania, where your fund has a, essentially, over 50% allocation to Tanzania, which is odd, to say the least. But it’s been the right call.
TIM: Yeah, that’s right. We have invested, since 2018, here in a personal capacity. And when the fund got going, it was still the case that I figured valuations in terms of blue chip companies, the value for money that you got was the best of anywhere in Africa. Yeah, there were structural reasons for that, there had been a banking collapse and a political regime that no one liked here, and it had left valuations very depressed. So when we started investing, you could pick up blue chip companies here trading at mid-single digit PEs that have 80%, even 90% market share in some cases. That’s the history of it.
Because I was starting a new fund, I could go in when the valuations were depressed. A lot of the other funds that had been in business since early in the 2000s or 2014, I think, was the peak year in Africa, a lot of them were stuck in Tanzania and wanting to get out, so we took advantage of that, picking up stocks on low valuations from the people that were looking to exit. And we’ve done very well. Our biggest holding is the biggest bank here in the country, NMB Bank, which we picked up for around TZS 1,700 a share. The last trade that went through on Friday was at TZS 4,600 per share, and it’s paid amazing dividends along the way, earnings have been growing at over 30% a year in the time that we’ve been investing. So as you say, it’s been the right call.
I don’t think Tanzania is particularly cheap anymore in most cases. There are still some stocks that we like, but there are other places now where we’ve started deploying capital more regularly, including Kenya, which is our second largest exposure at this stage.
LADISLAS MAURICE: Before going to Kenya, can you give us an example, if people were to buy into your fund right now, that biggest holding of yours in Tanzania, roughly, what are the metrics at current valuations, PE ratio, dividend yield?
TIM: Sure. NMB Bank actually reported its unaudited results just last week. If we take the fourth quarter 2023 number and we annualize it, in other words, assuming zero growth for 2024, for argument’s sake, you have a 3.9 times earnings multiple and it’s also an 8% dividend yield. So that’s pretty attractive, still. But as I say, the stock has run all the way from under TZS 2,000 to more than TZS 4,600. But of course, the earnings have grown just as fast.
LADISLAS MAURICE: Are you trimming Tanzania a little bit to deploy into other markets?
TIM: Yes. We, obviously, are a funds management business, so we’re reliant on fund inflows and redemptions, and we have to juggle a few factors. Ideally, I would get a lot more people putting money in the fund, and I would just invest that, and I wouldn’t be trimming. But in terms of capital allocation, yes, we have trimmed our NMB position slightly in the last six months, and we’re also looking for chances to trim other things. If we don’t get large fund inflows, that’s probably the best way for us to allocate investors’ funds going forward.
Investing in the stock market in Kenya in 2024
LADISLAS MAURICE: Okay, clear. Look, Kenya. I’m going to add a chart here showing the NSE 20 Index. I don’t know, it’s just been cratering and cratering. Kenya is starting to be disturbingly cheap. What’s happening there? What’s your outlook? What are you buying?
TIM: I had the same feeling as you. I was early to declare that Kenya was cheap. It was cheap and it got cheaper. I know you visited Kenya as well in the not too distant past.
LADISLAS MAURICE: Yeah, it was cheap.
TIM: And the main surprise, I guess, was that the currency has fallen as much as it has. The Kenyan shilling traditionally depreciates but not as badly as many other African currencies. In the time that I have been investing for the fund in Kenya, the currency has gone from about KES 105 to the US dollar to around KES 160 now, and there was even a time last year where you couldn’t even get any dollars if you tried. People were hoarding dollars in anticipation of a further slide. Obviously, they thought that that was a good way to speculate and make money. However, recently, it seems to have found a level. The low recently on the officially-quoted rate was KES 162, and it’s closer to KES 160 now. So for the first time in many, many months, there were actually a couple of days where the Kenyan shilling bounced, it gained ground against the dollar instead of a relentless sort of downward slide.
And the main reasons for this are well-known, the country has a fairly large Euro bond repayment due in June this year, which they have to meet in dollars. There was a concern that they may not be able to roll it over. That concern, I think, it’s still there but it has lessened. It seems as though African frontier debt markets are open again, Ivory Coast raised some money in the Euro bond market last week, or the week before, $2.6 billion, which is quite substantial. So we can talk a little bit about that later when we get to Ivory Coast. But Kenya, basically, has seen a relentless slide in the stock index and the currency, as you correctly pointed out. And it’s left great blue chip companies selling at valuations that are extremely attractive, in my opinion, as long as your assumption is that Kenya doesn’t disappear off the map and go to zero, which I think is very farfetched.
The government knows that they have to pay this Euro bond off. They’ve been doing a lot of things that are quite painful in terms of raising taxes, and levies, and all sorts of things to raise this money. And I don’t think that there’s any high probability that they will default, barring any sort of unforeseen catastrophic events between now and June, they should get that over the line, the market should breathe a sigh of relief, and maybe we may even get a little bit of economic sunshine in the second half of the year. That’s kind of my base case assumption. Stock markets have discounted all of that and then some.
Investing in Safaricom
TIM: We have been adding quite heavily to our position in Safaricom, which is Kenya’s largest company. It’s the biggest mobile phone company there, for those unfamiliar with Kenya, but it’s also much more important than that, it is the single most important company for making payments in the economy. Their mobile money platform is used by almost everyone to transfer money and pay for things. And it’s really a company that’s integral to the entire economy in that respect. It’s partly government-owned, partly owned by the Vodacom group, and partly owned by the public. Very, very well-managed company, and the shares have been completely hammered down from KES mid-40s, KES 45, all the way down to, I think, the low was KES 11.50.
LADISLAS MAURICE: Wow.
TIM: I didn’t manage to pick up any quite at that level, but I did buy a large block at KES 12.50, I think, for the fund.
LADISLAS MAURICE: What are the metrics right now?
TIM: Safaricom is a little bit tricky. Most analysts value it based on discounted cash flow, which includes the negative value of their Ethiopian business, which is currently losing money because it’s just in the startup phase and they’re in the capital expenditure cycle there. But the way I look at it, which is the sum of parts, I look at the Kenyan business as a standalone, and then I value Ethiopia. I don’t value Ethiopia as being negative, I value Ethiopia as having some value, namely, sort of the capital expenditure that they’ve outlaid so far. But if you look at it from that metric, it’s on a high single-digit PE, it yields 9% now based on historical dividend. It’s really got to the point where it’s a high-quality company trading for cheap valuation. It used to be a high-quality company trading for an extremely high valuation, much like all the famous US tech stocks.
It was in that category during the boom, a lot of frontier and emerging markets funds, they had an allocation to Safaricom because of the high quality nature of the business and the sort of techie-ness of the mobile money arm. But that all changed, sentiment is terrible towards Kenya. Foreign funds decided that they wanted their money out before the Kenyan shilling collapsed, and you saw those shares go from a peak, as I said, of KES 44 or KES 45 in 2021 all the way down to KES 11 recently.
LADISLAS MAURICE: Any other interesting sectors in Kenya like banking, or insurance, or consumer goods?
TIM: We have been buying shares in KCB. There are two dominant banks in Kenya, although it’s a quite fragmented banking industry. The two big banks are Equity Group and KCB. Equity Group is a company that’s founder-driven and has quite a large business in the Democratic Republic of Congo, which they’re focusing on. KCB is a government-owned institution, historically, and it’s more focused on the Kenyan market. And it’s also trading at a much lower valuation than Equity. So recently, we started buying KCB. Again, it’s one of these stocks that you’ve seen collapse from, I think it was in the KES 40s and it went all the way down to KES 17 recently. There was a period, briefly late last year, where it dropped off a cliff from KES 30 down to KES 17, and that’s when I decided that it was just too cheap to ignore.
LADISLAS MAURICE: And in dollar terms, I mean the drop is even bigger in dollar terms.
TIM: Exactly, because of the Kenyan shilling having lost about 25% as well in that timeframe.
LADISLAS MAURICE: Cool. So if people want cheap, they can look at Kenya right now.
TIM: Yeah, but also quality in the case of Safaricom, it’s not just cheap value stocks, it’s actually cheap quality businesses.
LADISLAS MAURICE: In relatively fast-growing economies, because Kenya is growing, what, like 5% a year, roughly?
TIM: Yes, it continues to eke out decent economic growth even with these challenges. They had a drought back in 2020 and 2021, if I’m not mistaken. Much more favorable weather conditions mean that the agricultural economy has been doing well in the last 6 to 12 months. And that’s important in a place like that, where a lot of people rely on both subsistence farming and also cash crops. Kenya is quite famous for agricultural exports to the European Union, and also cut flowers, tea, lot of cash crops. The fact that the weather has been kinder to them is a good thing for the future of the economy, their economic growth is holding up, even in spite of all these challenges that they faced with the debt and the currency.
Investing in the stock market in Rwanda in 2024
LADISLAS MAURICE: Cool. Okay, thank you. Your third biggest position is tiny Rwanda, correct?
TIM: That’s right. It’s almost a tie between Rwanda and Senegal. Rwanda, as you know, is a small country infamous for the genocide that occurred there in the early 1990s, but more recently, has been quite well-regarded as a reforming country, run by a strong man who, if you listen to the positive, say that he’s a benevolent dictator that’s doing all the right things and turning Rwanda into Singapore. Opinions are mixed on that. But I have friends who live in Rwanda who report back the place is continuing to make good progress. They don’t have a lot of listed companies, but the ones that we have been invested in or are still invested in are completely dominant.
The stock that we own there is the leading brewing company, it’s also the Coca Cola Bottling subsidiary. And it’s just well-managed and does very well year in, year out. So we’re comfortable with that. We have had exposure, in the past, to the biggest bank in Rwanda as well, but we took the opportunity to exit that late last year and switch the money into the brewing company that we own. We have just over 6½% of the portfolio in that company in Rwanda.
LADISLAS MAURICE: What are the metrics on that one, roughly?
TIM: It has been yielding double digits and it was also trading at a high single-digit PE multiple when we talked about shares recently.
Investing in the stock market in Senegal in 2024
LADISLAS MAURICE: Great, Tim. There’s this one country that I’m very bullish on, which is Senegal. It’s been having a few political issues. There is a lot of ongoing tension. But from an economic point of view, what’s happening in Senegal is quite amazing with all the oil and gas that they found that’s finally coming to production. I think GDP growth is projected to be almost 10% this year in 2024, also very high in 2025. Can you tell us a bit about your allocation to Senegal, and also what you think of some of the political risks in Senegal, because there’s been a lot of antigovernment protests, the people, the street is increasingly anti-French. And we’ve seen how that’s turned out in the Sahel, which is not the same, different people, etc., but still, there’s a lot of tension in West Africa when it comes to the French former colonialism.
TIM: Yes. Actually, just over the weekend, the Senegalese President, Macky Sall, he postponed the upcoming elections. We’re not sure exactly how that’s going to fall out, but he has cited too much political tension. I think there’s about 20 different candidates for this election. He has announced he’s stepping aside, he’s not running. He’s honoring the two-term limit. But there is a prominent opposition candidate who was jailed on what some people think are trumped-up charges. He was on a hunger strike, he’s been let out, he’s running, as well as a number of other candidates, including, obviously, guys that Macky Sall hopes are going to win because they’ll be his anointed successors. It’s quite messy politically, as you say.
Economically, the country does continue to do well. Oil and gas, as you correctly cite, is a very important sector there. Some big offshore discoveries, long lead times to develop these things but it seems as though, finally, they’re going to see some cash flow. But our exposure in Senegal has actually been through the largest mobile phone company there. It’s not only active in Senegal, it’s also active in Mali, and then some of the smaller countries there, Guinea, Guinea Bissau, and Sierra Leone. But it’s done well for us. It’s dominant the same way that Safaricom is in Kenya, with nearly 60% market share in most of these markets. It has the dominant mobile money platform, although there were some challenges. There were some Silicon Valley-funded startups that came in and undercut them, so they had some challenges, especially in Senegal and then also in Mali.
But we’ve done well on that position, it continues to trade at a sub-seven times earnings multiple and yields well into double digits. We’ve been happy with our exposure in Senegal. I haven’t gone and visited the country yet. That’s something that’s on my to-do list perhaps for later this year. At that point, I think I would feel more comfortable with looking for other exposures. Sonatel is a large company, is a subsidiary of Orange, out of France. And they attend a lot of the conferences that I go to, so I’ve sat down and met face-to-face with management, both in Dubai and in Cote d’Ivoire. Last year, I was at a conference in Abidjan where their senior management were there. But to meet other companies in Senegal, I think I need to go and actually put boots on the ground, and later in the year is quite likely.
LADISLAS MAURICE: It’s well worth it. It’s a beautiful country. I definitely want to go back at some point. And yeah, what’s interesting about Senegal as well is, well, one, the President kind of pushing back the elections, that would have been pre-approved by the French. So that’s one. Because he was quite close to them. And two, though Senegal is going to see about 10% growth this year, thanks to oil and gas, actually, I was reading some reports and the growth without oil and gas would have been about 6%.
TIM: Still very solid, yeah.
American VCs in Africa
LADISLAS MAURICE: It’s not just an oil and gas boom, there are very good fundamentals in Senegal. About that point that you mentioned about American VCs coming into African markets and then trying to undercut the local big guys, personally, when I was working in Africa, you’d see all these VC types, like, these Americans, they come down, they have big smiles, they’re going to change Africa, this that, they come with a bunch of money, big splash, typically, within two years, they’re gone.
TIM: Yeah. It’s tough operating
LADISLAS MAURICE: Is this something that you’ve seen?
TIM: Yeah. I mean, look, there are some successes, but in general, and if I use this specific example in Senegal and Mali, this company that came in, is a company called Wave, that’s the brand that they use for their local mobile money offering. And basically, the only thing they really had to offer was to undercut on price. It’s a typical Silicon Valley business model, where they just lower the price to a level where the company doesn’t make any money, hemorrhages cash. And the strategy is basically reliant on their investors continue to pump money into the venture capital company so that they can go and burn it in Africa. And I think those days are probably gone after the last year with rates having gone up so much in the US.
Now, here, in East Africa, I do have a local friend and contact who works with VCs. And they have had some success, mainly in agribusiness. They come in and they actually help improve existing processes and work with the existing entrepreneurs to improve their offering. That seems to be the model that works, rather than trying to come in and compete with the locals on a different price parameter.
LADISLAS MAURICE: Because the only other success story I can think of when it comes to Americans is, what, okay, so some natural resources plays and KFC. [laughs]
TIM: Right.
LADISLAS MAURICE: But generally speaking, Americans don’t do well in Africa. That’s been my experience.
TIM: Yeah. I mean, the Coca Cola Company, obviously, is everywhere. They have a model of buying up well-regarded local brands, both in bottled water and soft drinks, and then just integrating them into the Coca Cola distribution system. That sort of works. But yeah, it’s tough to bring Silicon Valley type, scale it quickly, and grow, grow, grow. It’s not really working. Jumia was a famous example in recent years, also. It’s not an American company but they copied the Amazon business model, and they wanted to be the Amazon of Africa, is a couple of Swiss and French guys, I think. And they got it listed on the New York Stock Exchange, raised a bunch of money, and they burned almost all of it. And they have no prayer of showing a profit anytime soon.
LADISLAS MAURICE: I remember when I worked in West Africa, back then it was littered with young, bright Europeans who were working for Jumia on various ventures, selling cars online–
TIM: Yeah, selling back then. Yeah, yeah.
LADISLAS MAURICE: food delivery, and I don’t know, like, all these online businesses, they were all in charge of the business. And then when I’d make them talk about the business model, they were hemorrhaging money. There’s no ways these people would ever, ever be profitable.
TIM: Yeah. That’s been the model elsewhere in the world. It’s worked in some limited places, but not something that works in Africa. You’ve got to be very savvy operationally to make money here. You can’t just come in and splash money around left, right, and center and hope that you grow large enough to stick.
LADISLAS MAURICE: Yeah, generally, when it comes to business in Africa, I would prefer to back Europeans. They generally have a much better understanding of the market, and how things work, and getting things done on the ground, as well as the Chinese, and the Indians, and the Turks.
TIM: Yeah, there are a lot of Lebanese entrepreneurs also in West Africa who do very well. Although, even there, there are some that are–
LADISLAS MAURICE: Half of them have West African passports, though.
TIM: True. Yeah, they’re local. Exactly.
Investing in the stock market in Cote D’Ivoire Ivory Coast in 2024
LADISLAS MAURICE: Cool. Okay, so that’s Senegal. You’re bullish, you have a position. That’s good. What about the other French ogre in the region, Ivory Coast?
TIM: Ivory Coast, I visited and put boots on the ground last year. It’s not somewhere that we have a position at this stage. It’s a tough place to do business, very Byzantine. The business culture is not something that I’m all that familiar with. There was a listing of a telco there as well, Orange Cote d’Ivoire, so a sister company to Sonatel in Senegal. That’s the one that’s on my watch list, but it never got cheap enough, unfortunately, for me to get excited. They have been doing reasonably well. I think the IPO was at 10,000 West African francs, the low was maybe CFA 9,000, and now it’s back up to, I think, between CFA 10,500 and CFA 11,000. So it’s holding its ground but it doesn’t have the same sort of valuation metrics that Sonatel does because it was listed recently and, of course, the investment bankers tried to maximize the price. And so watching, waiting, hoping that I might get a chance to buy that one a bit lower down.
Other things we’ve watched in Ivory Coast are in the commodity space. There’s a palm oil company that is quite dominant there. Of course, it’s also famous for cocoa. It’s one of the big centers for growing cocoa beans in the world, along with Ghana. No easy way to get local exposure to that, but I do have a cocoa trading company, in Switzerland, on my watch list as well that operates in Cote d’Ivoire, along with many other places. And that’s an industry that seems to have a good long-term future.
LADISLAS MAURICE: Okay. Didn’t you have some, like, cardboard company in the portfolio in Ivory Coast? [laughs]
TIM: Yes. I did have another Ivory Coast exposure, which was part of the Aga Khan Development Network. It’s a packaging company, exactly. So not cardboard, but hessian sacks and polypropylene bags for agri produce. But it was a tiny part of our portfolio. And I wasn’t getting good access to management and I decided to cut the position based on a number of factors. Not a disaster but it was one that I didn’t feel it made sense to keep holding.
LADISLAS MAURICE: Cool. Fair enough. Yeah, because Ivory Coast, though it’s had, I mean, a civil war pretty recently, 10 years ago, is seen as a safe haven in the region. And with everything that’s been happening in Mali, in Burkina Faso, in Niger, what Ivory Coast has seen is an inflow of capital coming from these countries.
TIM: Yeah.
LADISLAS MAURICE: I’ll just give an interesting anecdote. My father is a university professor, he teaches business. And a few years ago, he taught in Niger for a few weeks. And when he was talking of developed countries, his students from Niger were giving Abidjan as an example of a developed country, right? Really seen, in French West Africa, as the hub of French West Africa and as a haven of stability, in spite of its checkered past. It’s quite interesting. Generally speaking, valuations in Ivory Coast are a bit higher than in other markets because of this special status.
TIM: The capital flowing in from neighboring regions.
LADISLAS MAURICE: Yeah.
TIM: Yeah, that makes sense.
Investing in the stock market in Nigeria in 2024
LADISLAS MAURICE: Cool. Let’s talk about the white elephant in the room, Nigeria. [laughs]
TIM: Yeah, yeah. Nigeria is a fascinating place. I go every year to check the pulse and see what’s going on. Last year, of course–
LADISLAS MAURICE: Before we go into that, population of Nigeria so that people understand how big Nigeria is compared to all these other markets.
TIM: Sure. Depending on who you listen to, and what census you believe, but between 180 and 200 million people, most likely. And that is close to one sixth of the entire African continent in that one little country, so very significant, huge potential market. A lot of problems in Nigeria but also a lot of opportunity is the usual way that it’s viewed. [laughs]
LADISLAS MAURICE: Because Nigeria is littered with the corpses of people who saw opportunity in Nigeria.
TIM: Correct. There are a lot of listed companies there, which also makes it something that, as a fund manager, I need to focus on. It was what I considered uninvestable for the first two-and-a-half years or so that I was running the fund because of the exchange rate having been artificially pegged at a very low level and multiple black and gray market foreign exchange rates operating simultaneously. We did use that to our advantage and put some money in by some deft maneuvering, you can buy Nigerian shares in London, transfer them to Lagos, and then get a much better exchange rate that way. But it was not a market that I was prepared to commit significant capital to until that exchange rate issue was sorted out and we saw signs of serious reform, which I’m pleased to say we have seen since the election last year.
The new President, Tinubu, seems to not be shy about cracking skulls and getting rid of existing systems that were there for the longest time under his predecessor, Buhari. Of course, I’m sure he has his own vested interests that he’s working on behalf of, but he’s upended the applecart, really, and there’s been a lot of change. The other major change that he introduced was the abolition of fuel subsidies. Nigeria was crazy in that petrol was severely subsidized and selling for about one sixth of what diesel was selling for, which wasn’t subsidized when I first went there. That was a real eye-opener. And then when I was back last November, the petrol subsidies had gone, they’d let the exchange rate go, and it was floating.
Typically, you could get NGN 800, NGN 900 for your dollar, NGN 800 or 900 naira on the official market. If you’re paying, in a hotel, on a credit card, that’s the rate you get. But on the street, in the parallel market, you could still get NGN 1,200, NGN 1,300, NGN 1,400. There was still a problem, obviously, with the functioning of the market. And that has continued in the first weeks of this year, until last week there was another change, where they’ve basically pulled the banks in and said, “Look, you have to make a proper market here, stop hoarding FX. You’ve got to quote volume two-way spreads.” And it seems that that now has seen it fall to the black market rate. The naira now is quoted officially, last I checked, at NGN 1,391, which is actually even more than I think the last prints in the parallel market.
You’re now getting a situation where the market may have the possibility to start clearing. The banks had been told that they have to sell FX. They are. They’re getting a rate that they now deem is fair. Instead of NGN 900, they’re getting closer to NGN 1,400, so of course, they’re going to start letting some of their dollars go at these levels. It remains to be seen, though, still a lot of dust that needs to settle. But I’m hearing positive things and the traders that we deal with for the fund, they’ve also said that they’re seeing larger volumes in the Nigerian FX market, which is becoming more liquid. But it’s certainly not a safe, stable market where it’s predictable what you’re going to get. I mean, I don’t want to wire my clients’ money off to Lagos and run the risk of being quoted a bad exchange rate. You need to see the spreads and the intraday levels narrow before we have full comfort.
There was a time, in December, I was checking on it and the FX market had ranged from NGN 770 to NGN 1,100 or something in one day in the session. It’s just nuts. [laughs]
LADISLAS MAURICE: Wow.
TIM: So change afoot, but still in need of stabilization before I think your average investor becomes anywhere near remotely comfortable.
LADISLAS MAURICE: Okay. What does that mean for you? Do you consider yourself to be the average investor? Are you allocating more to Nigeria?
TIM: [laughs] We have not put–
LADISLAS MAURICE: Are you just, like, what’s your allocations?
TIM: At the moment, we only have two-and-a-half odd percent in Nigeria. It is tiny as far as our fund is concerned. And we have not allocated fresh capital to Nigeria, other than reinvesting a dividend that we maybe could have taken out since, well, since beginning of last year, really. Yeah, we’re still tentatively watching and waiting. And as I say, until I have some kind of, not guarantee, but comfort that the exchange rate has stabilized, then it’s very difficult to justify sending our currency into Nigeria.
LADISLAS MAURICE: Sure. For sure, for sure. It’s a dark hole, things disappear in Nigeria. Cool. Tell us about the subsidies for gas, for petrol, because they were removed, but it would appear that they’re kind of back in, or the price of petrol hasn’t really gone up but it should have. Because that’s also a big factor.
TIM: Yeah. Officially, the subsidies were totally removed, but that meant that the price shot up by 500% overnight, like, it went up 6×. And obviously, for the average person who needs to catch a commuter bus to work, or drive their car, or whatever, it was very painful. Yes, there has been some kind of backdoor reintroduction that has not made headlines. Petrol prices are still way, way higher than they were under the subsidized regime, but they’re perhaps not yet at the market level that they should be.
The other thing going on in that industry in Nigeria is that Dangote, the wealthiest Nigerian billionaire, he’s actually been building a huge oil refinery, and that has finally come online. And it is producing refined petroleum products with, at the moment, from what we understand, imported crude. The idea behind it was that it would use Nigerian crude instead of Nigerian crude being sent abroad, and then refined, and sent back in the form of petrol and diesel, that they would use the oil that they have at home. But for the moment, it doesn’t appear to be that that’s the case. Dangote refinery being up and running is a big positive, but it still seems messy in that they’re importing oil from somewhere else to refine and then sell in Nigeria. So who knows where it all ends up.
But it’s a country that, without Nigeria firing on all cylinders, it’s hard to see Africa firing on all cylinders, because of it being so dominant. It’s one that we watch, and we’re positive that these reforms are taking place and that the oil industry, and the refinery, that’s all moving in the right direction, but we do still worry a lot about the operating environment, and the high levels of inflation, and the average Nigerian doing it tough, which means there’s a lot of insecurity in society. And also, if you go out in the countryside in Nigeria, there’s a lot of banditry, and kidnapping, and stuff like that, which is never good for the economy.
LADISLAS MAURICE: Look, your point about Africa not being able to fire on all cylinders if Nigeria doesn’t, I don’t know. I question that in the sense that there’s still so little intra-African trade. And especially with Nigeria, like, no one trades with Nigeria. Maybe only a few countries around, Benin, Cameroon.
TIM: Well, there’s a lot of informal trade is what I would say. And this is a point actually, I was talking to you earlier, that I recently hired a new colleague. I was talking to my colleague prior to this call, if there’s anything that he thought I should highlight. And that was actually one of the things he pointed out, that despite most people having the opinion that trade is sort of centrally directed in Africa and there’s a lot of political lobbying to more harmonize the countries, and bring them together, and encourage trade, the Africa Free Trade Agreement, all this sort of stuff. That’s all really hot air, as you correctly point out. [laughs]
But at a personal level, at an entrepreneurial level, people are actually starting to do more trading amongst each other, because it’s just a natural thing to do. I mean, these borders are really not natural to have in a lot of these countries, and people, they will do commerce, and trade, and so on, but it’s all off the books. The exception being, perhaps, some of the larger publicly-listed companies, not so much in West Africa, which I’m less familiar with, but certainly here in East Africa, for example, you can now move money between Safaricom and Vodacom here in Tanzania. It’s all becoming much more integrated, the borders and obstacles are actually starting to disappear. I can go to Kenya and I can pull money out of my Tanzanian mobile money account over the counter and vice versa.
LADISLAS MAURICE: Really?
TIM: Yeah. My colleague was here from Nairobi last week, and he was able to draw on his Kenyan account here in Tanzania. So slowly but surely there are some signs that these artificial barriers are being taken down, but it’s limited. It’s big private sector companies and individuals, small-time traders and so on, not so much the governments. The governments are still all squabbling. [laughs]
Investing in the stock market in Ghana in 2024
LADISLAS MAURICE: Cool. What about, let’s move on to Ghana.
TIM: Ghana is starting to improve. Ghana is a country that has historically had periods of boom and then they get overexcited, spend too much money, borrow too much money, and then the currency collapses, the banking system faces the consequences, and they hit the reset button, and they start again. And we’ve seen the same thing happen here over the last five years. Ghana loves–
LADISLAS MAURICE: That’s the Ghana cycle. [laughs]
TIM: [laughs] Yeah. I mean, Ghana is a very rich country in terms of the natural resource endowment that it enjoys, gold, cocoa, oil and gas was the thing that started to come online here in the last decade. And the government started spending beyond its means before the oil and gas revenue kicked in, is my sort of shorthand interpretation. They went off and they issued Euro bonds, borrowed a lot of money against the future oil revenues. And then they spent them on projects that, unfortunately, don’t really have any return. And probably a lot of the money also went in corruption and so on.
That’s another thing that we structurally see all over Africa, actually, just if I can digress for a second, that a lot of these infrastructure projects that have been built, there’s no real payback. While the infrastructure is great, and it’s there, and it’s functioning, the price that they can charge or the economic benefits that the infrastructure brings just isn’t there yet to the degree that it’s needed to pay off the money that they borrowed. And Ghana was the perfect example of this. The currency, when I first started investing money for the fund, was at about GHS 580 to the US dollar. They defaulted not only on their external debt but also on domestic debt. Basically, Ghanaian banks got hosed as well on all the government bonds that they were holding. There’s been a very messy period of adjustment here over the last 12, 18 months, but the currency has finally stabilized at around GHS 12.
The current account is now in surplus, so the currency devaluation has at least worked to bring down sort of frivolous imports and also boost exports. We’re hopeful that Ghana is now on a more solid footing. They still haven’t come to any final agreement with debtors on the exact level of haircuts and so forth. Although Ivory Coast recently raised some money in the Euro bond market, which was surprising to everyone, I think Ghana is a long way off ever returning [laughs] to the Euro bond market. But at least the economy is turning around, and they’re earning more foreign exchange, and the exchange rate seems to have stabilized.
We have a small allocation to Ghana as well. We own MTN Ghana, the dominant mobile phone company there. And we have a legacy position in one of the banks that we’re actually trying to sell down for obvious reasons. That was one that we got wrong. [laughs]
LADISLAS MAURICE: I lived in Ghana for a number of years. And it’s very dynamic. I was in charge for Nestlé of both Ghana and Ivory Coast for Nestlé’s respective milk businesses in the two countries. And though many of the tribes are similar in Ghana and in Ivory Coast, just the economies are just so, so different. In Ivory Coast, everything is bureaucratic, slow, steady, whereas Ghana is just up and down, up and down. It’s just chaotic and a lot more dynamic.
TIM: Yeah, yeah.
LADISLAS MAURICE: A lot more dynamic, and less bureaucratic.
TIM: Right. Interesting.
Investing in the stock market in Total Gabon
LADISLAS MAURICE: Cool. And then you took a position recently in little Gabon.
TIM: Yeah.
LADISLAS MAURICE: Actually, something that’s very easy for people to trade but that no one talks about.
TIM: Right. Gabon doesn’t have a stock market itself but there are some French companies active there both in the oil and gas industry and also in minerals. I think Eramet has quite a big business there. But the one that we took a chance to take a position in was TotalEnergies Gabon, which is both an upstream and downstream player. They’re partners with the government of Gabon in some of the oil fields, and then they also run the Total Service Station network in Gabon.
And it was kind of a confluence of events. We had some dividends that we had been paid in Tanzania, and there was a difficulty getting dollars, but we were able to get euros. So we took those euros and we sent them up to our trust account in Europe. And then the coup in Gabon happened. And this stock, TotalEnergies Gabon, which is on my watch list, is one that I had not been able to buy in enough quantity for it to make it worth my while. When I run $23 million, I need to have at least sort of 1%, 2% of the fund in a position. So half a million dollars, say, was sort of what I needed for it to be worth me spending the time to continue following the company and so on. When the coup happened, there were a bunch of panic sellers, and that allowed us the opportunity to pick up a few blocks of shares and get exposure there.
It’s a company that has very lumpy earnings and dividend streams. But it trades in Paris so you can see it in your Interactive Brokers account, if you have one of those, or on Yahoo! Finance, and all the finance sites on the Internet. And if you look at the historical numbers, I think it’s on a 22% dividend yield and about two-and-a-half times earnings or something like that. So it’s very cheap. But as I said, the earnings can be very lumpy.
Conclusions on investing in the stock market in Africa in 2024
LADISLAS MAURICE: Yeah. Suddenly, you get dividends and then you don’t get dividends for a while, so you never really know. Cool. All right. Look, I think this was really interesting, Tim. Look, overall, having lived in Africa for many years, I find that your fund is one of the most interesting ways to get exposure to the market there. You invest in blue chip companies in these kind of medium countries in the middle that no one ever discusses, these blue chip companies that have a lot of moat, they have a lot of market share, they’re not expensive, they spit out decent dividend yields, and they’re not listed anywhere else, you have to go to the local markets. Unless people are interested in opening brokerage accounts in Abidjan, in Dar, in Nairobi, in Kigali. [laughs]
TIM: A lot of work, yeah.
LADISLAS MAURICE: Yeah, good luck. It’s just one of the easier ways to get access to these markets. And all of these ETFs, these Africa frontier market ETFs, etc., that you see in London, and Paris, and New York, they’re mostly just buying commodities companies, or a bit of a Nestlé, and whatever Western companies have exposure to Africa. But if you want true, true, true Africa exposure, excluding North Africa and South Africa, that have very different dynamics that you can’t compare, I find that your fund is definitely one of the more interesting ways to go about it.
Would I go all in? No. Just as you, Tim, with your own money, you’re not all in Africa, no one should be all in Africa. But as part of a diversified plan, it is far from crazy to be invested in these markets with amazing demographics, a lot of natural resources, and overall dynamics that are completely different from other parts of the world.
TIM: That’s right, it’s an uncorrelated exposure, is the way I look at it for people who have a broad portfolio, is you’ll often find that your African stocks are doing completely different things to what your other stocks are doing at different times in the cycle.
LADISLAS MAURICE: And even within these markets. Ghana might be going through one of its usual busts, and then, at the same time, you have like Senegal that’s booming, and Zambia might be going through debt restructuring, and then Tanzania might be booming.
TIM: Different [crosstalk 48:49].
LADISLAS MAURICE: Yeah. Even across the continent, I mean, Africa is not Africa, Africa is many different countries, each with their own dynamics and economies.
TIM: Correct, yeah. Very much so.
LADISLAS MAURICE: Your fund is a diversified way to get exposure to that continent.
TIM: Very much so, yeah.
LADISLAS MAURICE: Cool. Fantastic. Look, Tim, thank you for your time. If anyone is interested in finding out more about what Tim has to offer, there’s his email below. There’s also a link to his newsletter. Not often enough, Tim, we need to discuss this–
TIM: [laughs]
LADISLAS MAURICE: but not often enough he writes blog posts about some of the on-the-ground experience and information that he finds when he’s traveling across the continent. Tim, you have not been writing enough. In the past six months, you wrote one blog post–
TIM: [laughs] I’m taking the lazy option and just doing it on Telegram. I have a Telegram channel and I do a lot of commentary there.
LADISLAS MAURICE: Okay.
TIM: But yes, I do have a blog. I think I wrote about my trip to Nigeria, but that was back in November. I was going to write something about my recent trip to Hong Kong. That’s, of course, not Africa-related, but it’s China and Hong Kong-related. Maybe that’s going to come out soon.
LADISLAS MAURICE: Cool. There’s a link to that newsletter and there’s also a link to the Telegram channel where you’re certainly a lot more active.
TIM: Yeah, I’m a bit more active there. Yeah, that’s correct.
LADISLAS MAURICE: Okay. Fantastic. All right. Tim, thank you. Cheers.
TIM: All right. Nice seeing you, Ladislas. Take care.
