Accessing frontier markets through developed market companies

The last decade has been a tumultuous one for the world economy, to say the least. It may, therefore, come as something of a surprise that in the midst of this, Africa as a continent has delivered gross domestic product (GDP) growth per capita in every year since 2000 – GDP increasing by over a third in that time.

African economies are generally associated with resource wealth, but GDP growth is increasingly driven by private consumption. In 2011 private consumption contributed 5.5% to African GDP growth, relative to just 1.5% from resource extraction. While investing in African companies is challenging – their shares are often illiquid and expensive to access – as interest in the region develops these problems could start to ease. However, African consumption already contributes materially to the revenue and profits of many big European companies including Unilever, Nestle, Standard Chartered, Barclays, Lafarge, Diageo and Vodaphone to name but a few. Investors can therefore often access the growth of frontier emerging markets without the higher risk associated with direct investment.