The Best Markets In Africa? A Look at the Africa Investment Index for 2018


The Africa Investment Index (AII) is a report ranking all the countries in Africa in terms of medium term investment appeal. It is produced by Quantum Global, a company based in Switzerland but with a focus on Africa, whose main businesses are investment management and research. They have produced this report annually and recently released their 2018 report last month which can be found here.

The 5 Best Markets In Africa According to the AII

Before we dive into how the rankings are constructed, here are the top 5 markets in Africa according to the AII:

  1. Morocco
  2. Egypt
  3. Algeria
  4. Botswana
  5. Cote d’Ivoire

On the other end of the spectrum, Central African Republic and Liberia were the worst and second-worst countries in the ranking. It is surprising to see Egypt so high on the list but overall the rankings look reasonable.

Mixed Methodology

To create these rankings, the AII uses 13 different criteria that can be grouped into 6 main factors:

  • Growth factor: Domestic investment, size of the economy, economic growth
  • Liquidity factor: real interest rate, excess money supply
  • Risk factor: exchange rate risk, import cover, external debt, current account ratio
  • Business Environment: Ease of doing business, trade openness
  • Demographic factor: population
  • Social capital factor: Facebook penetration rate

The growth factor, risk factor, and business environment categories are standard and make general sense, even if economy size or nominal growth generally does not have a strong correlation to future investment returns.

Liquidity factors where higher interest rates result in worse rankings seem like an oversimplification. A high real rate, that is an interest rate much higher than inflation, could be a form of protecting the local currency, but that is not necessarily a bad thing – it would be much worse for a country to face pressure on its currency but not act to defend it. Plus, for fixed income investors, a high real interest rate could be attractive.

Social capital factor, which looks at Facebook penetration rates as a proxy for ease in forming potential business networks, seems to be an odd factor to include with the others. We suppose Facebook penetration rates can also be a proxy for smartphone usage or technology infrastructure, which could be correlated to a productive business environment. But it seems to be quite a reach to use Facebook penetration as an indicator for “the level of networks, knowledge and connections in the target country”.

Confusing Scoring

Since they mention six main factors but have 13 scored categories, we decided to check how total rank scores were calculated. Unfortunately, after computing the score for multiple countries, a straight average of all 13 categories did not match what was published, nor did an average of the six factors. The only explanation is there is some weighting to the categories that isn’t disclosed in the methodology. But it’s a bit odd that the numbers do not seem to match the most common-sense way of calculating the scores.

Still Useful as a Broad Overview

Despite the flows, the AII is still useful as an overview of the investment climate and potential of Africa, since they manage to cover 54 different countries. Given how rankings have their own biases, it is also useful that they have 4 year rolling data so you can see how countries have improved over the years. Overall, given the lack of well-written investment knowledge on Africa, the AII is a welcome addition for frontier market investors in Africa.


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