John Hildebrand is head of charities at Investec Asset Management.
"Trade is the determining factor in Africa's developmental progression," Bob Geldof told the Financial Times on 10 March. Not every investment article begins with a quotation from Sir Bob, but when looking for opportunities one often has to cast one's net pretty wide.
Half of the world's production of cobalt, cocoa, vanadium, diamonds and platinum still comes from Africa. So, at a time when charities are encouraged to invest in commodities and emerging markets, it makes sense that they should consider investing in Africa.
The case for Africa is wider than just commodities: industries such as telecommunications, construction and tourism all offer attractive investment opportunities - such as Orascom Telecom of Egypt, which has more than 25 million subscribers and operates successfully in Egypt, Algeria, Tunisia and Zimbabwe. The company produced earnings growth of 80 per cent in 2005, bringing the price investors will pay, in terms of multiples of earnings, down from more than 30 times to 18 times.
Growth is high for companies such as Orascom because their markets are still developing, penetration rates of telephony are low and competition is limited.
Africa offers 1,850 companies across 16 countries. The monthly volatility of its returns over the past five years was less than that of other emerging markets and that of the US. Its correlation to other equity markets has also been on the low side. Consequently, one can argue that investment in Africa lowers rather than raises portfolio risk.
Equally importantly, it offers growth opportunities. Databank Group forecasts that economic growth across Africa will be 5.5 per cent in 2006. As growth improves, the cost of capital is falling and the political risk premium that suppliers of capital require diminishes. Both these factors have helped push earnings upwards and the prices of African markets, in terms of earnings, down. Multiples across Africa average 14 times, compared with 17 times for developed markets.
As a result, Africa offers opportunities to invest in high-growth firms, with falling costs of capital on reasonable ratings. Although this will push up prices, it will also lead to further falls in the cost of capital and greater demand for goods and services. Per capita income in sub-Saharan Africa has, according to Databank Group, risen from $528 to $568 (£304 to £327) in the past five years.
For charities - particularly those that aim to help Africa develop - investment in Africa makes sense in terms of their overall and portfolio objectives.