Recently we released a white-paper report for investors and fund managers looking at emerging markets entitled Improve Investment Decision in Africa. By using ‘Consumer Confidence Data’ the report describes why combining top-down data such as GDP with bottom-up data about consumers can yield to better investment decisions in Africa.
Given the relatively low growth rates in the developed markets (Europe, US), the argument for investing in less mature economies is strong. Investing in frontier market economies such as Kenya, Uganda or Ghana offers the potential to earn attractive long-term returns. For those willing to be patient and willing to take the road less traveled, these markets offer investment opportunities with higher growth rates and often attractive valuations.
While recognising that capital markets and angel investing are still in their infancy in Africa, it is not easy to make investment decisions and take positions in these markets. The investment process can be lengthy and difficult due to the lack of reliable and actionable data.
The African consumer is not very well understood
Most investors will say there is still a lack of data on Africa that is accurate, reliable, independent and current. The African consumer, who is the main driver of future growth in Africa, is not very well understood. More than 50% of GDP is driven by internal factors such as consumer consumption. The main reason startups fail is related to market problems: absence of market fit, misunderstanding of the customer pain points, overestimation of the market size.
Africa Capital Group, an Africa fund manager based in San Diego (USA), partnered with KASI Insight to evaluate KASI’s monthly consumer confidence index in terms of its predictive strength. Of particular interest was to 1) examine whether the confidence score accurately affirmed a decline or increase in the level of economic growth and 2) whether the prediction of the confidence index aligned with existing macro forecasts of public and commercial data providers.
The white paper covers:
- The challenges of investing in African countries and sectors
- The importance of consumer confidence data
- A case study: What consumer confidence data is revealing about the Ivory Coast market
- We examine whether the confidence score accurately signals a decline or increase in the level of economic growth and can thus be used as a lagging indicator
- We test the consensus forecast of economic growth for specific countries.