Most asset classes fared poorly in 2022. African frontier stock markets were one of the few that in aggregate performed relatively well.

In this episode, I interviewed Tim, an Australian based out of Tanzania who runs an African equities fund. We discussed the markets in:

  • Tanzania
  • Kenya
  • Nigeria
  • Francophone West Africa
  • Rwanda
  • Ghana

as well as

  • Corporate governance in Africa
  • Capital controls and forex shortages
  • Geopolitics in Africa

Having lived and worked in Africa for 7 years in my “prior life”, this is a topic I am passionate about. I worked for 4 years in Johannesburg, South Africa, and then spent 3 years in Ghana running Nestlé’s dairy business for a few West African countries.

or read the transcript below

A long term diversification play

I believe that this is a continent that every serious investor should have some allocation to but positioning sizing is crucial. At the end of the day, where else can you buy cheap stocks with double-digit dividend yields, low debt, and double-digit year-on-year growth figures?

As a tailwind, many of these cities will see their populations nearly double by 2050.

It’s a completely different play compared to the rest of the world.

Also, Tim has a free newsletter on his investments and travels in Africa; it’s worth signing up for it (here).

To a World of Opportunities,

The Wandering Investor

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Transcript of “Investing in completely uncorrelated markets”

LADISLAS MAURICE: Hello, everyone. Ladislas Maurice from So today, I’m really excited to be talking to Tim about African frontier stock markets. Tim, how are you?

TIM: Good. Thanks, Ladislas. How are you doing?

LADISLAS MAURICE: Good, good. So I’m here in Paraguay, you’re in Dar es Salaam, correct?

TIM: I am, that’s right. Just back from a quick visit to Hong Kong, back to Africa, where the action is.

LADISLAS MAURICE: Good, good. And you’ve been living in Tanzania for how many years now?

TIM: It’s going on two-and-a-half years. Came in late 2020, September 2020 and been here ever since.

LADISLAS MAURICE: Good. Good, good. So let’s talk about African stock markets. Because I think one of the big learnings from 2022 is the fact that these markets seem to be completely uncorrelated to the rest of the world, really, even to other emerging markets. Can you elaborate on this theme?

African stock markets are uncorrelated

TIM: Yeah, sure. We look at around 17 different markets here in Africa. Not every country has a stock market, but the ones that do, they had a good 2022. Most markets around Africa, the GDP growth is still in the low single digits, mid single digits. And I guess the level of correlation between GDP growth and the stock markets here in Africa is still there. There are a lot of places around the world where economies are doing one thing and stock markets are doing another. US markets, terrible year last year. Here in Africa, our fund, we made money. It was one of the pleasing things about the fund that I had been telling people I thought would happen, and sure enough, that is what did happen. The economies here are sort of at an earlier stage of development, obviously, and simple industries that we saw do very well in developed markets 30, 40, 50 years ago are still very much growth industries here.

So valuations on the businesses are low already, that could also be a factor in this, that a lot of the gains in recent years in developed markets where people did very well were actually not necessarily due to the growth of many of the businesses, but because of the valuation gains from lowering of interest rates. So when interest rates started going up very, very quickly, we saw that effect come through in the markets. Downside, I guess, here in Africa, is you don’t have as much of an investor class as you do in the developed markets. So probably the people that are investing in equities, they’re people that are not struggling for money. They’re among the local elites, and their behavior doesn’t change greatly from year to year, it’s sort of steady as it goes.

Those are some of the things that I can point to as being perhaps behind that level of non-correlation, as you say. But the bottom line is that I think there’s a long runway for growth in basic industries here. And that’s something that I think, regardless of valuations, people are able to compound money over a very long period of time. And that’s one of the attractions and why I came here to set up the fund a few years ago.

LADISLAS MAURICE: Yeah. And ultimately, these markets are cash markets, there’s zero leverage in the game. It’s only people who have cash who can invest. So that brings less immediate upside but also less immediate downside in many cases. There’s not that leverage effect unlike in our Western markets.

TIM: People are sort of under pressure from falling prices of other assets that they need to raid the piggy bank, as it were.

LADISLAS MAURICE: Yeah. But I think that’s what a lot of investors in your fund were quite happy with, was seeing that they were up on the year versus the rest of their portfolio, apart from energy, if they had been invested in energy being down. So can you tell us, because I mean, Africa is big, it’s easy to say, “Africa, Africa,” can you tell us about the country allocation of your fund? Because typically, when people invest in Africa, they go and they buy some random ETF in London, or New York, but your approach is very different. You invest on the local stock markets. So your fund has brokerage accounts on all these local stock markets, and you invest in local blue chip companies. So what’s your current country allocation?

Investing in the stock market in Tanzania in 2023

TIM: Yes, that’s right. We have a country allocation that would be quite different from any ETF that people might see trading on a developed market. I am based here in Tanzania, this was the market where I came, back in 2018, to have a look at things on the ground for myself and became attracted to the valuations of some of the dominant blue chip businesses. I’ve since moved here, really good network here, it’s the place that I know best, and it’s where I saw the most opportunities in the short run. And that’s reflected in the allocations that we have here in the fund. I don’t set out to get a particular percentage allocation to any one country. The only rule I have is that no more than 50% of the fund can be invested in one country based on the costs that we go into that.

So over time, obviously, if you put 50% of your money in one country, and that country does very well, it might rise as a percentage of the overall basis for the fund in market value terms, but on a cost basis, 50% in Tanzania has sort of been my cap. And we’re very close to that, we’re at 48.6% at the moment, but it’s climbed in value to be 58.4% of the fund as of yesterday’s market closing. I was just updating everything earlier today. So we do have a dominant position here in Tanzania. Not a lot of other funds investing in this part of the world would have anywhere near as much of their assets allocated here. So I think that stood us in good stead because this market has been doing well.

LADISLAS MAURICE: So why that much to Tanzania? Because I mean, I lived in Africa for seven years, traveled all over, it’s quite random to have over 50% of your allocation. (laughs)

TIM: Exactly. It’s more of a bottom up, it’s the result of me finding enough good businesses here to invest in. I’ve spent some time, since I started the fund also in Kenya on two separate occasions, I spent several weeks there. I also made a trip over to Lagos back in September. So I’m looking at trying to find businesses in other places that, A, are as attractive, and, B, where the country macro environment is also attractive. And unfortunately, a lot of countries, at the moment, are struggling with things like parallel foreign exchange rates and other macro factors that are not particularly attractive to an overseas-based portfolio investor such as myself. I’m not saying Tanzania is perfect, but we haven’t had any of these kinds of issues crop up. Doesn’t mean that they won’t crop out sometime in the future.

But it’s a combination of those two things, favorable macro conditions, and then also the fact that there are enough high quality businesses trading here locally that I’ve been able to buy in quantity. A lot of other funds are a lot bigger than ours, and that probably means that a market like Tanzania it’s too small for them to get a large percentage of their capital allocated here because of that size factor. So that’s another part of it.

LADISLAS MAURICE: Can you give us an example of a company? Because you were talking about good value and good businesses, etc. Can you give us an example of a business?

Investing in Tanzania Breweries Limited stock in Tanzania

TIM: Yeah, sure. Our largest holdings are the dominant brewery here in Tanzania, Tanzania Breweries Limited, which is a subsidiary of Anheuser Busch InBev, which is based in Brussels, which is a conglomeration of lots of different beer companies around the world. They acquired the Tanzania Brewery business by their acquisition of SABMiller a number of years ago. And it has around 80% of the market here. It’s a young demographic here, every year you have one-and-a-half million kids reaching drinking age, graduating high school, and so on. So there’s a great tailwind for their business long-term in my opinion. It’s also a very well-managed and efficient company. Of the most efficient breweries on the African continent, four of the top five belong to Tanzania Breweries here in Tanzania. The fifth one is a brewery in Uganda that also belongs to Anheuser InBev’s subsidiary there, Nile Brewing, which is not a separately listed entity, so we could never buy that.

But that’s one of the big holdings that we have. We also own NMB Bank, which is–

LADISLAS MAURICE: Before we go there, can we elaborate, just to take it as a case study. So what’s the PE ratio? What are the debt levels? What’s the dividend yield? Kind of if you make–

TIM: Okay. So, the way that I look at valuations starts with the return on equity that a company is generating or the return on invested capital. And in these markets, given that you can get a good rate of return on government bonds in the low teens means, in many cases, I’m looking for businesses that generate at least 15% return on equity unlevered, and ideally double that. So Tanzania Breweries is somewhere in the low 20s, depending exactly what you back out of the calculations and so on. But it’s a high quality business, is what I’m saying, and it generates a high return on equity.

The price to earnings ratio, at the moment, it’s tricky, because there are two separate prices for this stock, one for the block trades that I have access to and one that retail investors here on the local exchanges have active access to. But on our cost basis, we’re in at about 10 times earnings. And the dividend yield is around 5%. So it’s not super cheap. I’m happy to pay up for a high-quality business like that. The beauty is it’s completely debt-free. So it’s a net cash balance sheet, and it trades at a reasonable multiple of the equity as well.

LADISLAS MAURICE: So what were its growth figures last year in USD terms?

TIM: So we haven’t got the final results out, but they’re back to double-digit top line growth, and EPS growth is even faster than that because of the operating leverage. So you have a company that’s trading on about 10 times earnings and growing at more than that. So there are a lot of sort of benchmarks that people use when investing. One of Peter Lynch’s favorite ones was to have a price-to-earnings growth ratio of less than one. And he was always seeking businesses like that. Peter Lynch being the legendary manager of the Fidelity Magellan Fund, who has one of the best track records in history, really. He retired early and went off and did something else. So hats off to him. (laughs)

Block investing in Africa

LADISLAS MAURICE: So, you mentioned something a bit earlier about two different prices. So one being the price for retail investors and the other one being for block investors. Can you elaborate on the concept of block investors?

TIM: Yes. So, one of the quirky things about a lot of these African stock markets is that they have somewhat perplexing trading rules. Also in other places, not just in Tanzania, but for example, in Nigeria, prices won’t change on the exchange unless at least 100,000 shares turn over in a session for that particular company. And that’s whether the shares are one cent or $100. So it’s not the amount of money that matters, it’s how many shares. So that’s an arbitrary rule. Here in Tanzania, they have a similar arbitrary rule, where a certain percentage of the company shares have to turn over, and then the price on the stock exchange will change. But at the moment, Tanzania Breweries is such a big cap company, and the price has got out of whack, and the amount of shares that have to trade to change the price on the board, it never happens.

So there’s a kind of a parallel market that the stock exchange has sanctioned, where any investor who has at least 200 million shillings to spend can buy from another investor who’s selling sort of a larger block. Two hundred million shillings here is about 85,000 US dollars. So I guess if you’re a fairly big retail investor, you could have access to that board. And also the off board block trading, and I’ve done that also personally. But it is an impediment to some of the local investors to trade in those large blocks [crosstalk 00:13:40] can get a price.

LADISLAS MAURICE: Do blocks trade at a premium or at a discount?

TIM: So they’re trading at a discount, because there are people who have been holding these shares for a long time, and we’re at higher levels, and they want out. For example, foreign investors redeeming from Africa, and so forth. So a lot of what we’ve done to build our portfolio in Tanzania has actually been to buy blocks from people that were going in the other direction, which has worked very well for us.

LADISLAS MAURICE: Cool. So you mentioned–

TIM: So an example, you really need the local knowledge. And it’s one of the reasons that I’m here on the ground, and I’ve come to ferret around in the minor details, not only of what companies are doing, but also the way that shares trade on the exchanges and the little quirks like this. I don’t think that a lot of the guys managing funds like mine, sitting in Chicago or New York are really involved at this sort of a nitty gritty level. I mean, their brokers are, they delegate this to other people, but those other people they don’t have the interests of the investor directly at heart. They have the interests of the fund manager that’s placing the order at heart, and how the money comes doesn’t really matter to them. So it’s one of the unique things about the fund that I run, which is, hopefully, going to continue.

LADISLAS MAURICE: Yeah. I mean, there’s definitely value to be created by being there on the ground rather than sitting in some London office for sure. For sure, for sure.

TIM: Yeah.

LADISLAS MAURICE: I think it gives people a good overview of what you’re investing in. So just breweries, cement companies, just normal everyday businesses. You also invest in banks and all that.

TIM: Yes. And mobile phone companies are another big part of the listed companies based here in Africa. Those are probably the three main sectors, financial services, mobile telephones, and basic consumer products, consumer staples.

Risks of investing in Tanzania

LADISLAS MAURICE: Cool. Fantastic. Thank you. So what’s your biggest, because I mean, 58% allocation to Tanzania, what’s your biggest risk in Tanzania?

TIM: For every country, foreign exchange rates is probably the main risk for a foreign investor, which most of my clients are. The dollar, obviously, has been strong, and every country here tends to run an inflation rate that’s a bit higher than the developed world, although that’s changed in the last 18 months or so. So foreign exchange is always a risk. And we did have a situation in Ghana, which is another country where we’ve invested in a very good business, MTN Ghana, which is the leading mobile phone company there, where the exchange rate has more than halved since we started investing. So we’ve obviously been hurt by that, given that we record our results and report in US dollar terms.

So that’s also a risk here in Tanzania over the longer term. So we keep close eyes on whether the country’s balance of payments trend is sustainable, how much money they’re borrowing from overseas, whether the level of import cover, in other words, how many months of imports that the current level of foreign exchange reserves that they hold can pay for. So there are certain critical indicators that we track. We do think that at some point, the exchange rate here will depreciate. But we’re not too worried about that in the near future. Other risks are obviously political. These countries are not as stable as some, although again, you look at Western countries these days, and are they really more stable than Africa? Some of them are certainly not. It’s really funny the way the world has changed. So I look at macro risks, the main two being political risk and foreign exchange rate risk, those are really top of the list.

Investing in the Ghana stock market in 2023

LADISLAS MAURICE: Talk about foreign exchange lists. So your fund has about a 5% allocation to Ghana. And I mean, that country just literally went through, the currency just imploded. It’s going through a debt default. It’s going to have to go through restructuring–

TIM: Yeah. They’re going to renegotiation with their foreign creditors as well as their domestic creditors. So yeah, to give you an idea about how it’s impacted–

LADISLAS MAURICE: How did this impact you?

TIM: Yeah, so we had an exposure on a cost basis in Ghana of, so this is based on how much money we’ve invested, we had about 1/8 of the portfolio in Ghana, well, just over 12%. So that has now fallen to be just under 5%. So basically, we’ve been cut in half, and then some, and largely due to the exchange rate. So this is one of the risks. The company I mentioned before, MTN Ghana, they’ve been growing so fast that their earnings per share have actually compounded at about the same rate that the currency has devalued. So in US dollar terms, we’re basically treading water. So this is a classic example of what can happen when things really do implode.

The issue with Ghana was that they had a lot of earnings from abroad. They’re a big exporter of gold, they’re second in the world in cocoa, after Ivory Coast. They also have a significant hydrocarbons industry that sprung up here over the last decade, and the government seems to have gone on a massive borrowing and spending spree based on the projections of what they were going to earn in royalties from this hydrocarbons industry, at least this is my shorthand interpretation of it. And they basically mortgaged the future, and then spent the money, and then some, and all of a sudden, people realize that, well, maybe there isn’t going to be enough money left to rollover or pay back these euro bonds that they took out.

So it was a case of the politicians’ eyes getting dollar signs, and going and borrowing far too much, much more than they should have. And that’s the thing that does not apply currently in Tanzania, but I watch it quite closely, they have been adding to their foreign debt pile. But the difference is that they don’t have any outstanding euro bonds, where they’re really answerable to the capital markets, they’re all sort of bilateral loans and soft loans from development aid institutions, and so forth, for the most part. Ghana, unfortunately, seems to have gone down another road. And the politicians there are still refusing to cut back much on their spending. There’s an infamous example of a national cathedral and a museum that they just refuse to lower the budget of, even though things have hit the fan as it were. So it’s a risk, for sure. The foreign exchange rate risk is always number one, as I said, a short while ago.

LADISLAS MAURICE: I mean all these countries in Africa once in a while go through a big devaluation. But Ghana, I mean, it’s been their history. Ghana has always had two things going on. One, a great narrative, and a lot to show for it, too. But two, just a terrible currency, the Ghana cedi is always collapsing. I mean, when I was working there, for a few years, I was running the P&L of the Nestlé dairy business in Ghana. And when I arrived there, I arrived in the midst of a devaluation. And we had to do pricing scenarios. I remember, for about two months, during the peak of the devaluation, we were redoing our whole pricing scenarios two, three times a week. It was hell. We had price increases every week, every 10 days. It was, yeah, a lot of sleepless nights. (laughs)

TIM: I bet. Yes, it’s interesting, some of these countries that there are businesses that can function very well, even in this very hostile operating environment. And Nigeria, I would put in the same category, I spent some time there in September. And boy, if ever there were a country that had macro challenges and difficult operating environment, that’s it. And–

Investing in the stock market in Nigeria in 2023

LADISLAS MAURICE: 3% allocation to Nigeria.

TIM: Yeah, there’s a story behind that, that we may not have time to go into today. But Nigeria, at the moment, is almost un-investible because they have a parallel foreign exchange rate system where, as a foreign investor, if you sell something for Naira in Nigeria, you have to join a queue at the central bank to get your money out. And it’s taking 9 to 12 months. So it’s not a country I want to put a lot of money in until [crosstalk 00:22:59].

LADISLAS MAURICE: For sure, like strict capital controls, parallel exchange rates.

TIM: So the election in Nigeria was held over the weekend. And everyone’s hopeful that there will be change once the new president comes in and starts shifting things around. But we’ll wait and see what happens. It’s by no means a certainty.

Investing in the BRVM stock market in 2023

LADISLAS MAURICE: Cool. So for now, you’re just keeping a 3% token exposure to Nigeria, but yeah, that sounds very reasonable. It’s not a market I would rush into. So you have approximately an 8% allocation to the West African stock exchange. So that is the Francophone one, so Ivory Coast, Burkina Faso, Senegal, all that.

TIM: Senegal, Mali. Yeah.

LADISLAS MAURICE: This seems a little low. Is it because your English-speaking, or? (laughs)

TIM: (laughs) No. Although I would like to be able to access more financial reports and so on there personally, instead of having to delegate it out. There just aren’t enough large high quality companies is basically the answer. We own a significant position in Sonatel, which is the West African subsidiary run out of Senegal of Orange from France.


TIM: Yeah. Basically, mobile phones, mobile money, and that’s a high quality business that’s generating good returns on equity, pays out a very healthy yield. They actually reported earnings last week, and the dividend has increased again to a net after tax dividend of 1,500 West African francs. And our entry cost, I think, for those shares is 11,400. So if you do the maths, we’re on nearly a 15% yield for that one, which is good.

LADISLAS MAURICE: Nice. And it’s in euros. I mean, the West African franc is [pegged 00:24:54] to the euro.

TIM: It is, although that didn’t help much last year when the Euro went below parity, we got hammered on the FX there as well, although it’s since bounced back. There are really not a lot of companies listed there that offer the size and the liquidity that we can take a significant enough position to make a difference for our fund. But I will be always on the lookout, obviously. And I would like to have some more exposure. It’s an area of the world where there are opportunities and we keep our eyes open.

LADISLAS MAURICE: I remember when I was working in West Africa, I was managing both Ghana and Ivory Coast at the same time for the milk business. And generally, for West Africa, what we could see is when the Anglophone countries were doing well, like Nigeria, Ghana, etc., the Francophone countries weren’t doing too well. And when the Francophone countries were doing well, then it was the other way around with the Anglophone countries. Because their whole structures, their whole economies are completely different. Though in many cases, they export the same products, but because the Anglophone countries have their own currencies, which they can devalue it, etc., but the Francophone countries don’t, they essentially just stick to the euro, the cycles are actually surprisingly different.

TIM: Okay, that’s interesting. At the moment, I think a lot of the countries over there are struggling, but being commodities exporters, if we are in a new commodity bull market, hopefully, that changes here over the coming decade.

Investing in the stock market in Kenya in 2023

LADISLAS MAURICE: So tell us about ever disappointing Kenya.

TIM: Yes, Kenya is a market that we have invested in several companies that, unfortunately, are doing all right but their share prices are not. There’s a big bear market in Kenya at the moment, a lot of people are disillusioned with the share market. There is some fundamental reason for that, given that the country, again, like Ghana, has also got a lot of foreign debts that they have to roll over or pay back. And there’s been a situation where there’s even a foreign exchange scarcity, a lot of people are hoarding dollars in Kenya in order to, hopefully, get a higher price for them in Kenyan shillings down the line. So it’s not quite as bad as Nigeria, but a parallel exchange rate has started to develop. And if you want your money out of Kenya, you need to be accepting of a lower exchange rate than the official one. So there’s a large spread that’s opened up.

But Kenya went through their elections last year. And there was a fairly smooth transition of power to Ruto from Uhuru Kenyatta. And they’re still sort of feeling their way, the new government. And we’re still hopeful that the reality is not as bad as the doom and gloom in the stock market. I know you visited Kenya as well, last year, or maybe it was even the year before and had a look around, and met with the CEO of the stock exchange there. So businesses are offering great value. And the better companies are still growing their earnings and everything’s fine. But there’s just no enthusiasm for anybody to invest in Kenyan stocks at the moment. Locals are giving them a wide berth and just keeping their money in T bills, and bank accounts, and real estate, stuff like that. So until there’s some sort of a catalyst to change that mood, I’m not really expecting Kenya to set the world on fire.

We have got positions in some of the companies there. And as long as we can earn a good dividend yield, and the companies are delivering on what we thought they would, then we just have to wait for the macro to turn around. And that’s the situation, it’s a bit of a waiting game.

LADISLAS: So I think this is a very good lesson, not just for stock investors, but for real estate investors, is that when you invest in these emerging markets that have current account issues, there is a real risk in terms of getting your money out. So countries can have a current account deficit for a long time and be completely fine if there’s enough foreign investment coming in. But it’s always a risk, you can buy– So for example, if you had bought an apartment in Kenya, and you’re like, cool, I’ve had it for a few years, I want to exit my position. Great. You can sell your apartment in Kenya, but then trying to get your money back will be complicated. So, legally, you’re allowed to, but then you might find yourself in some foreign exchange queue, whereby the bank tells you, “Yes, sure, we’re going to send your money when we have the dollars.” And then you’re just there sitting in Kenyan shillings. So you sold your apartment in Kenyan shillings, you have Kenyan shillings in your bank account. And now you have to wait until there are dollars.

So I remember having this with my salary when I was in the peak of the currency crisis in Ghana when I was working. And sometimes, the bank didn’t have dollars. And I was just sitting there with a whole bunch of cedis that were devaluing by, I don’t know, like, 2%, 3% a day. And then only after five, six days, the banker would send me an email and say, “Hey, I have some dollars for you.” And then it’s just whatever exchange rate the bank gives you, you just say, “Yes, yes, yes,” and then you get your money out. So it’s a risk, you sell your property 200K, let’s say, in shillings, and then you have to wait three weeks, four weeks, maybe just five days, maybe two months to for the bank, especially a big amount, you’re not connected. It’s not like you’re a politician that knows people, etc., you’re not going to be at the front of the queue, you’re actually going to be at the back of the queue. And in the meantime, you lose money.

So what happens is, when you have parallel exchange systems that get put into place like this, is it just kind of freezes the market. People that have cash, locally cash, want to buy something, anything that they can get ahold of, but people don’t want to sell. That’s the issue. People don’t want to sell. So the volume in the market just decreases.

TIM: They’re hoarding their dollars very much so in Kenya, and you’re exactly right. So if you want to get money out, the official rate is 127. But good luck getting that, you’re going to have to pay 134, 135, so you give up that spread.

LADISLAS MAURICE: Which is fine, 3% gain, 4% to get your money out.

TIM: [crosstalk 00:31:58] taking it when you can get it.


TIM: When you can get it, just take it.

LADISLAS MAURICE: But that’s the beginning.

TIM: We’ve tried to build this factor into our system in that we’re looking to compound our money at 14½%, 15% a year, double every five years, if possible, in US dollar terms. Well, that means we’d have to be compounding it a lot faster in local currency terms. And that’s how we try and factor that in. But it does make life complicated on occasion when everyone starts to hoard their dollars and the market doesn’t function the way it should be. So actually, we had a situation in Kenya where there was a block of BAT Kenya shares that came up for sale at a very decent price, there was a foreign investor wanting to sell to switch into something else. And rather than send money into Kenya, what I decided to do was I decided to liquidate an existing position and get shillings that way.

So I effectively liquidated something that I thought was and is still good value, I own it, but it was less good value than the other one that I wanted to switch into. So rather than send fresh money in, I just rotated. And that’s the sort of tactical thinking that you, sometimes, have to come up with.

Investing in the stock market in Rwanda in 2023

LADISLAS MAURICE: Cool. And you have a 9.5% allocation to tiny Rwanda.

TIM: Yes. Rwanda is an interesting one. It’s a fairly well-managed economy in the context of Africa. Not a lot of companies there listed, and they trade almost by appointment. So we have been fortunate to buy decent positions in both the leading bank there, BK Group Rwanda, which is I think it accounts for over half of the financial industry. And then one of my favorite stocks of all in the portfolio is the Rwandan beer company or the leading brewer in Rwanda, which is called Bralirwa, a Heineken subsidiary.

LADISLAS MAURICE: You seem to like beer a lot, Tim. Do we need to talk about this? (laughs)

TIM: Yeah, well, a lot of people here that like beer, and it’s hot and your thirsty, beer tends to sell well. But Heineken is the majority owner of that and runs it. The company has, I think, again, 80%, 90% market share. Obviously, that depends on sort of what imports are not accounted for, which is always an issue. Illicit trade in alcohol and cigarettes happens everywhere in the world. But these guys are also the leading Coca Cola bottling plant in Rwanda, so they dominate both beer and soft drinks. And, again, there was a foreign investment fund that had made a lot of money in this company over the years and were happy to exit at one point last year, so we were glad to buy a position from them.

The only way you really get to buy a significant number of shares is if there’s another holder that wants to exit in a hurry among the foreign investment crowd. And we have done well on both of those positions, which means that the share of the fund that’s dedicated to Rwanda has climbed over the years and probably will continue to do so. Currency there has also been weak but not catastrophically so, it’s depreciating at a steady rate of 3%, 4% a year, which is manageable.

Corporate governance in Africa

LADISLAS MAURICE: That’s good. I mean, one of the biggest risks of investing in such frontier markets is corporate governance. And by investing in these subsidiaries of large Western companies, essentially, you have two tiers of auditors that are going in there. You have the local auditors, and you also have the auditors from headquarters, or from Deloitte that are being sent from Europe or wherever, who come and go down and check out the operations and do all of that. So as an investor, this is an additional safeguard, it’s you know that these businesses are being audited on a few levels, which is very reassuring. It reduces risk a lot.

TIM: Yes. I didn’t deliberately set up to have a portfolio weighted towards these kinds of companies, but when I run my investment screens, and what they spit out tends to be these companies, and we ended up with a portfolio like that. But I’m basically looking for dominant companies that have very good returns on capital and are well managed. And these are the companies that end up making the cut. And it’s interesting that that’s how it’s evolved.

LADISLAS MAURICE: Yeah. And that’s what I like about your portfolio, is you’re invested in different industries across very different geographies. So, like what happened in Ghana last year, the country blowing up, these things are going to happen to other countries as well. And Ghana blew up, but hey, guess what, Senegal was doing great. So that’s why having a diversified allocation is important. Because at any given point, something in your portfolio is going to be blowing up. It’s just how things work in Africa, two steps forward, one step back, two steps forward. So that’s good. Taking a step back, and just looking at Africa as a whole, right now, people don’t seem to be focusing too much on the continent. There’s things happening in Europe, there’s a lot of tension in East Asia, people seem to have completely forgotten Africa, it barely ever makes headlines.

Geopolitical outlook for Africa in 2023

What is your kind of macro perspective for the year, the next few years ahead? Do you think there’s going to be a renewed focus on the continent? Are great powers, because China is extremely active in Africa. But lately, a little bit less, it’s been lending a bit less money. The US is saying they want to be more active in Africa, but they say this but end up never really doing anything. The French are getting their butts kicked out of West Africa gradually by the Russians. Like what’s your overall take on what’s happening on the continent? I know it’s a complex question, but–

TIM: Yeah. I guess to keep it simple, the global geopolitics, I think everyone is interested in Africa to an extent. And China, obviously, had exerted a lot of influence over the last 15, 20 years. And the perception was that perhaps the US had taken their eyes off the ball. China has noticeably stepped back, I think, relative to what they were doing prior to COVID. They might come back with a vengeance, I don’t know. I haven’t seen any evidence of that recently. But the US seems to have stepped up its level of interest, never mind that it’s pretty busy fighting fires both at home and in Eastern Europe there.

So in Kenya, in particular, there seems to have been a renewed push by the United States to take an interest. They have sent a very high profile ambassador to Kenya, Meg Whitman, who was involved in eBay, I think, and used to run one of the big US tech companies. And there’s also been some high profile visitors to Africa recently, Janet Yellen, the former Federal Reserve Chairman, she was in several African countries recently. Jill Biden was visiting Kenya this last week, she might even still be there. So I think the Americans have kind of tried to show their face more often around Africa. Whether that translates into actual investments picking up [crosstalk 00:40:03].

LADISLAS MAURICE: Or just threats? (laughs)

TIM: But there’s a strategic interest, I think, to counter Russia and China here in Africa. So there’s that element of a geopolitical theater. Proxy wars is probably too strong a word, but certainly they’re trying to one-up each other around the place. And a place like Tanzania probably benefits from that, because Tanzania has always been nonaligned. They’re quite happy to take investments and have relations, foreign relations with any country. There’s a Palestinian diplomatic mission down the road, the Iranian embassy is around the corner. There’s a Cuban embassy here in Dar es Salaam. So it’s not like they’re pariahs that they won’t deal with, you know, the Chinese are certainly here in a big way, the Americans are here in a big way, but everyone is welcome. And–

LADISLAS MAURICE: And your fund is there in a big way. (laughs)

TIM: (laughs) Exactly. The railway that they’re building, the high speed railway, I should say, it’s a Turkish company that’s building that. So there’s a lot of interest from many different countries. And I think that’s beneficial. Obviously, there are other countries that are very closely aligned with one of the big powers. Zambia, for example, is very aligned with China, and Kenya, probably, in hindsight, are a little bit too closely aligned with China and took a little bit too much debt on for their infrastructure construction from China. And now, I think the Americans are seeing that as an opportunity to come back in.

And it’s one of the reasons why Kenya may be not in as much trouble as people think. It’s kind of why I’m a little bit more sanguine on Kenya. I don’t think Kenya necessarily goes down the tubes like Ghana did, because I think the Americans might be working behind the scenes to provide some assistance. There’s a big Euro bond repayment that has to be made early next year. And I think they’re going to get the money. But the markets are being very cautious. And there’s some good values in Kenya at the moment for that. Justifiably so, because my view is probably not the consensus one. But that’s what makes a market.

LADISLAS MAURICE: Good. Yeah. And just as a reminder, your fund is Sub Saharan Africa, excluding North Africa and excluding South Africa, because the dynamics are completely different.

TIM: That’s right, they’re a bit in the middle, which it actually makes it quite unique. There are a lot of frontier Africa funds, but they’ll either have exposure to North Africa or South Africa, or both. So we don’t have money in Egypt, we don’t have money in South Africa. And that’s what makes it a little bit different.

LADISLAS MAURICE: Yeah. Cool. For transparency sake, as well, so we had done videos in the past. I said that I was invested in your fund. Since then, I think like three months ago, I exited my position, not because I don’t think it’s a good long-term investment. I actually saw it as retirement money. But I had to take money from my retirement fund to get involved in some real estate investments here in Latin America. So I mean, I’ll be back, Tim, for sure. It’s just I needed the float in the meantime. And it took me, so if people wonder, it took me approximately, once I gave in my documents to cash out, within two months I had the money in my bank account.

TIM: Yeah, I think it all went fairly smoothly.


TIM: So hopefully, that’s satisfying. Yeah, we have another investor who’s doing the same thing. And, yeah, it’s a long-term opportunity. So Africa is not going anywhere. When you’re cashed up again, I’m sure you’ll come back into the fold and we’ll–

LADISLAS MAURICE: Definitely. Look, I see it as the best way to play Africa. I mean, having worked there and lived there, I understand the operational challenges of trying to do business in Africa, of trying to manage property remotely in Africa. I’ve made that mistake. I’m still paying the price in one of the African countries I invested in. So I see the value of just choosing the best local businesses and just sitting, and–

TIM: Yeah. Just kind of delegate it to them, let them worry about all the operational hassles, and we just collect the dividends. And hopefully, over time, also see some capital growth as other foreign investors come and join us, that’s kind of our strategy.

LADISLAS MAURICE: And then having auditors do the due diligence for me, that also helps, because I also was on the receiving end of property managers running away with some of my money (laughs).

TIM: (laughs)

LADISLAS MAURICE: So yes, I understand [crosstalk 00:44:55].

TIM: It’s a tough operating environment, yes. And I say the same thing to people. I mean, you and I have a network of friends who are quite entrepreneurial and so on. But it’s a difficult place to be an entrepreneur or try and do a private business. And I say my strategy is the polar opposite. I’ve gone for the big dominant businesses run by professional managers and with oversight from usually some multinational and it works well.

LADISLAS MAURICE: Yeah. And they deal with the crap.

TIM: Exactly.

LADISLAS MAURICE: You look at the numbers, you look at the macro, they deal with the crap. And I completely understand. I think anyone who’s lived and worked in Africa completely understands your position. Cool, fantastic. So if anyone is interested in learning more about African stock markets in general, I really recommend Tim’s newsletter. So there’s a link below. And once in a while, he sends essentially information from the ground, insight from the ground that he’s traveling, going to the different markets on the continent. So it’s very insightful. I enjoy reading you.

TIM: Great.

LADISLAS MAURICE: Cool. Tim, thank you very much for your time. Really, I really appreciate it.

TIM: No worries. It was nice to be back on. Hope your real estate deals work out for you in Latin America.

LADISLAS MAURICE: Thank you. Cheers.

TIM: All right. Cheers.