Africa is fast growing as one of the most desirable investment avenues in the world. Characterized by its young population, growing middle class and untapped markets such as agribusiness and health-tech, Africa offers countless opportunities for both local and international investors. For potential investors, Africa could seem as a technical avenue. However, with the proper guidance, Africa is a viable destination for investors to be.
First, understand what investment really means. Investment is a long-term strategy of determining how to build wealth over time by acquiring income-generating assets. The end goal in investing is to make sure that your money works for you. In Africa, investment opportunities have a wide range of options, from stocks in companies in Africa, bonds to real estate to startups that are in disruptive sectors such as tech.
Second, define the end goals in your investment journey. For instance, if you are planning to buy a car in the next two years, investments such as money market funds may be appropriate due to liquid nature as you can access the funds within 24 to 48 hours and its low risk as they invest in instruments such as treasury bills and bonds whose aim is to preserve capital. For long term goals such as saving for retirement, an investor would benefit from pension schemes, for instance.
Third, learn to start small. One does not need a large sum of money to start. For instance, in Kenya, money market funds would be a great place to start. Platforms such as the Cytonn Money Market fund, provide investors with favourable and competitive rates. Such funds invest in short-term debt instruments and they aim to preserve capital while providing modest and consistent returns.
Do enough research so that you may choose the right asset class to invest in. Such asset classes include, Money Market Funds, Treasury bills, Bonds and Real Estate Investment Trusts (REITS). MMFs are beneficial for short-term goals such as saving for contingencies such as medical emergencies. For instance, CMMF offers an effective annual rate of 13.51%. Treasury bills and bonds are issued by the Central Bank of Kenya. They have short maturities of 91, 182 or 364 days which have an average interest rate of 8.2%, 8.5% and 10.0% respectively. You can invest directly via the CBK’s DhowCSD platform.
It is beneficial for an investor to diversify his portfolio which may help evade shocks in case an industrial collapse happens. In Kenya, for instance, an investor may put his funds in avenues such as Money Market funds ideal for safety and liquidity, Unit Trust Funds ideal for moderate returns over a medium-term period and Savings schemes.
An investor should be aware of the potential risks involved in Kenya since every scheme has its own unique risks. Potential risks involved in Africa include market volatility, inflation, currency depreciation and fraudulent schemes such as pyramid schemes. An investor should always verify that any platform is licensed by the Capital Markets Authority, SACCO Societies Regulatory Authority or the Central Bank of Kenya. Investors should avoid schemes that offer returns that are “too good to be true”. Finally, an investor needs to monitor his portfolio regularly. Fortunately, most MMF’s such as Cytonn send daily performance reports via social media platforms. An investor should also be up to date with the news that may affect his returns in the near future.
Investing in Africa is no longer a pipe dream. With mobile tools and a growing rate of financial literacy, anyone can start building wealth. However, to avoid getting scammed, keep on learning and doing proper research. The earlier you begin, the better you will be.
