Podcast Summary: "Adventure Capitalism: Investing in Africa"

Podcast: The CGD Podcast
Host: Lawrence MacDonald (Center for Global Development)
Guest: Todd Moss, Vice President and Senior Fellow at CGD
Date: July 30, 2013
Episode Theme:
Exploring why Africa’s stock markets are the world’s last true frontier for global investors, how diversification trends have shifted, and what unique challenges and opportunities face those interested in investing in African equities.

Episode Overview

This episode centers around Todd Moss’s research paper, "Nowhere Left to Stock Market Correlation: Regional Diversification and the Case for Investing in Africa." The discussion examines Africa’s position as the last region offering uncorrelated returns for global investors, the changing realities of risk and opportunity in African markets, and practical avenues for individual and institutional participation.

Key Discussion Points & Insights

1. Global Market Correlation and the African Outlier

• Historical Shifts in Diversification:
  • Over the past 20 years, global stock markets have become increasingly synchronized, reducing traditional benefits of geographic diversification.
  • Quote: "All the markets of the world are converging... And Africa is part of this trend, but Africa is a notable laggard."
    — Todd Moss [01:55]
• Africa as the ‘Final Frontier’:
  • African markets remain less correlated with major western, Asian, and Latin American markets—making them appealing for diversification.
  • Asian and Latin American markets, once considered “exotic”, now move in near-perfect sync with the S&P 500, lessening diversification benefits.

2. Investor Interest and Perceptions

• Wall Street’s Perspective:

  • Institutional investors are generally aware of global trends. Interest in Africa is increasing, particularly from US pension funds and institutions that historically avoided the continent.
  • Quote: “We are getting those calls... there’s a general increase in investor interest in Africa, including by some US pension funds and other big institutional investors.”
    — Todd Moss [04:36]

• Overcoming the ‘Wild West’ Reputation:

  • Persistent images of scams and instability linger but are less and less accurate for business and financial circles.
  • Quote: "There are still a lot of people that when you say Africa, they think Black Hawk Down Somalia... or they think Nigerian email scam. I think that fortunately that view is increasingly a minority view."
    — Todd Moss [06:50]

• Example of Changing Perceptions:

  • Rwanda’s successful $400 million Eurobond issuance, oversubscribed nearly 9-fold, signals international investor confidence.
  • Quote: “It's still remarkable that you had people willing to put $3.5 billion into a 10 year bond in Rwanda.”
    — Todd Moss [08:38]

3. Returns, Scale, and Liquidity Constraints

• High Returns, Small Markets:
  • Markets like Ghana, Kenya, and Nigeria have delivered impressive recent returns (e.g., Ghana up ~50% in a year).
  • Quote: “Ghana stock exchange is up about 50%. Both the Kenyan and Nigerian stock exchanges are up over 30% this year.”
    — Todd Moss [07:17]
• Challenges for Investors:
  • Market capitalization is tiny compared to developed markets. Example: Nigeria’s entire exchange has only 7 companies of “mid-cap” US size.
  • Liquidity: Trades are thin; few buyers or sellers for large blocks; for instance, Ghana’s yearly volume is less than New York’s before the first coffee break.
  • Quote: “The Ghana stock exchange... trades less than New York will trade before they take their first coffee break.”
    — Todd Moss [10:42]
• Opportunities for Smaller Players:
  • The illiquidity and small scale can mean more growth “headroom” and some advantages for nimble small and mid-size investors.

4. Practical Investment Access and Individual Participation

• Barriers for Individuals:

  • Typical entry into African-focused hedge or specialized funds often requires $1 million+ minimums.
  • Direct Investment: Individuals can invest via global depositary receipts (GDRs/ADRs) for a handful of African companies listed in London or New York.
  • Quote: “You could look at a handful of companies, African companies that are actually listed through GDR and ADR in New York... or you could, if you wanted to really be adventurous, open an account with a stockbroker in one of these markets.”
    — Todd Moss [14:19]

• Personal ‘Adventure Capitalism’:

  • Moss recounts personally investing across 6 African markets, pooling with friends for an “investment club” approach, yielding an average of 11.5% USD returns over 11 years—despite volatility.
  • Quote: “We had some wild rides... over an 11-year period, we did 11.5% in US dollar terms per year.”
    — Todd Moss [15:08]
  • He underscores that proper research and trusted brokerage partners are crucial.

Notable Quotes & Memorable Moments

• On diversification reality:
  • "If you wanted to diversify your portfolio... that's decreasingly true, and really that just leaves Africa as the final frontier."
    — Todd Moss [02:40]
• On shifting Wall Street attention:
  • “There's a general increase in investor interest in Africa, including by some US Pension funds... Even if they're only going to put 1/2 of 1%...”
    — Todd Moss [04:36]
• On the legacy of the ‘Nigerian scam’:
  • “I do think that there is... a reputational risk. There are still a lot of people that when you say Africa, they think Black Hawk Down Somalia... I think that fortunately that view is increasingly a minority view.”
    — Todd Moss [06:50]
• On remarkable market performance:
  • “The Ghana stock exchange is up about 50%. Both the Kenyan and Nigerian stock exchanges are up over 30% this year.”
    — Todd Moss [07:17]
• On scale and liquidity divides:
  • “Nigeria... only has seven companies that would qualify as mid cap in New York.”
    — Todd Moss [09:55]

Timestamps for Important Segments

• Opening and paper premise – [00:15–01:44]: Introduction to the topic and why Africa is a unique diversification play.
• Global correlation trends and Africa’s lag – [01:44–03:45]: Discussion of how markets are syncing up globally, with Africa as an exception.
• Wall Street awareness and investor outreach – [03:24–04:36]: Who is watching these trends and whether the findings are new for professionals.
• Myths, scams, and changing reputations – [05:18–08:29]: Addressing the “Nigerian scam” stereotype and real performance data.
• Scale, liquidity, and structural barriers – [08:58–12:09]: The practical limitations of investing in African exchanges.
• Individual investing and personal stories – [13:44–16:57]: Moss’s own investment experience and options available for individuals.
• Closing reflection and caveats – [16:57–17:29]: Host’s summary, reminder that this is not investment advice.

Conclusion

This episode makes a compelling case for Africa as a uniquely valuable frontier for global investors. While the continent's markets remain under-correlated with the rest of the world—offering real diversification benefits—the realities of scale, liquidity, and the practicalities of access limit large institutional investment. Still, for individuals and smaller organizations willing to research and accept the risks, Africa offers both adventure and the potential for significant returns.

The episode’s tone is curious, honest, and occasionally playful, reflecting the complexity and excitement of true “adventure capitalism.”