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U.S. Companies With Africa Exposure Offer ‘Conservative’ Investment Opportunities

U.S. Companies With Africa Exposure Offer ‘Conservative’ Investment Opportunities

Ok, so you’ve done your research and you, along with many big-time U.S. institutional investors, have bought into the African growth story.

The general theme of diminishing conflict and political stability, a decade of high-grade economic growth, the Chinese invasion, and the growing wealth and sophistication of Africans have you convinced that Africa should no longer be a dark place for your investment money.

That being the case, you may already have bought into some of the many international equity funds featuring a high level of exposure to Africa’s growing economies. This satisfies the urge for the high-risk, high-return sweet spot, but what about placing your money into something a bit more conservative?

African bonds are out of the question – they are way too risky – but what about investment into blue-chip U.S. multinationals with wide-ranging exposure to the African market? In many respects this is a great option for the more conservative investor looking to cash in on African growth – one gets the safety and security of investing into a known U.S. company while indirectly benefiting from that firm’s African ventures.

Luckily, there are a number of U.S. firms with exposure to Africa that also make great investment choices for an internationally minded American investor.

Take, for instance, the underlying theme of the African growth story – infrastructure. Roads, bridges, factories, mines, power stations, railroads, ports, and all the other brick-and-mortar accoutrements of economic development require not just investment capital but also heavy-duty construction machinery. Say construction machinery and Caterpillar, Inc. immediately comes to mind.

The Illinois-based manufacturer of the workhorse yellow tractors, dump trucks, and other assorted machinery is a well-established player in developing markets, and has seen its unit sales growth on the continent skyrocket. Sales of Cat equipment in Africa are already up 30 percent this year and Cat’s local distributor, South Africa-based Barloworld Ltd., expects strong, continued “double-digit” sales growth for at least the next five years.

Similarly, since much of the African growth story is concentrated on commodities – oil, gas, lumber, gold, and other minerals –  one could also pursue the tried-and-tested method of becoming rich not by mining gold itself, but selling the mining supplies required to get it out of the ground and to market. The modern equivalents of the goldfield general store are oilfield service firms such as Houston, Texas-based Halliburton.

Halliburton, one of the World’s largest such firms, has operations in more than 80 countries and has wide exposure to traditional oil plays in North and West Africa. It also, importantly, has increasing exposure to the East African oil play in countries such as Kenya, Mozambique, and Tanzania where recent discoveries – including the world’s largest offshore gas field – have the global oil industry aflutter.

But it is not just your traditional heavy-industrial firms benefiting from growth in Sub-Saharan Africa. Other major U.S. firms, as reported in a recent piece in the Wall Street Journal, are racing to catch up with Chinese companies that have deeply penetrated into African markets. This includes forays by Harley Davidson – the U.S. motorcycle manufacturer – and Cummins, an American truck-part manufacturer, who are trying to cash in on a collective economy many analysts expect to grow to $1 trillion by 2020.

For those investors wanting to let Wall Street do their research work for them, the S & P offers a number of Africa-focused investment indexes. The S & P’s Access Africa Index, for instance, measures the performance of companies with significant operational exposure to Africa through securities that are tradeable and accessible to international investors. S & P’s Africa Frontier fund is a comprehensive benchmark including stocks from the Sub Saharan frontier markets of Botswana, Cote d’Ivoire, Ghana, Kenya, Mauritius, Namibia, Nigeria and Zambia.