Cementing growth: Investment strategies from South Africa

Nigeria, with its prodigious wealth of people and natural resources, will soon be recognised as the largest economy in Africa. Alas Nigeria’s Soverign Wealth Fund (SWF), the Sovereign Investment Authority (NSIA) and Nigeria’s trillion naira pension funds run the risk of being middling fund managers.

Last year, Public Investment Corporation (PIC), the 103-year old pension fund that manages $137 billion for South African government workers acquired 1.5 percent of Dangote Cement for $289m, “the single biggest deal registered on the Nigerian Stock Exchange in 2013”, according to Financial Times.

For most of its history PIC, Africa’s largest fund manager, did not invest outside of South Africa, it could not have been otherwise. The Johannesburg Stock Exchange (JSE) is the largest bourse on the continent. In 2008, according to data compiled by Credit Suisse, an investment bank, 32 out of 143 companies with exposures to Africa were listed on JSE.

Though PIC is not a SWF, its investment strategy is instructive. SWFs are state-owned investment vehicles that invest surpluses generated from a natural resource e.g. oil. PIC manages the pension of South African civil servants.

With its stash of patient capital, PIC has set its eyes on sub-Saharan Africa (SSA). In 2010 its mandate was changed to allow it invest 10 percent of its assets outside South Africa. It has invested $270m in Camac Energy and $250m in Ecobank, both companies are significantly exposed to Nigeria.

More so, the government of South Africa, the ministry of finance to be specific, through its National Development Plan, is keen on making South Africa the hub for fund management in Africa. Hence PIC’s investment outlook beyond its domestic economy to other African markets, on the trail of MTN, Shoprite and Standard Bank.

Another instructive thing about PIC is its focus on infrastructure investments within and outside South Africa. The boss of PIC contends that cement is the new gold. Imara, a pan-African investment and research firm says the cement industry in SSA is regarded as “the world’s last cement frontier.” Investing in cement companies exposed to Africa guarantees a considerable return on investment over a long-term.

Low consumption per person, consistent GDP growth, urbanisation and increasing expenditure of infrastructure (road, bridges, dams etc) is expected to increase demand for cement on the continent.

In a 2013 presentation, Dangote Cement identified the megatrends driving cement consumption as “political stability and economic transformation sustaining 6 percent growth across the continent, population growth, younger demographic and rapid urbanisation driving housing, infrastructure, and infrastructure improvements unlocking resources, agriculture, with strong multiplier effects.”

East Africa retains the pole position as the fastest growing consumer. PIC owns Tanga Cement, a Tanzanian company. Dangote Cement’s factories in Ethiopia, Kenya and Tanzania are expected to fully operational by 2016.

In West Africa production of cement is expected surpass consumption by 2015. Though importation of cement is reducing in Nigeria production capacity is chasing demand. The second biggest non-food expenditures by Nigerians in the last one year was on building materials (cement, bricks, timber, iron sheets, tools etc).

Through companies like Lafarge, Italcementi, Holchim and Cimpor, investors in Paris, Milan, Zurich and Portugal too are exposed to a high growth market where cement demand is growing faster than the global average.

In Nigeria we fear that there is no sense of urgency, no sign of thinkers tinkering with policies, too few policymakers devoted to putting together an economic strategy, no grain of enlightened national self-interest and no cluster of brainpower dedicated to growing and cementing the Nigerian market for the benefit of all Nigerians, for the common good of Nigeria Inc.