Invest in Africa : A framework for Rational Investment in Sub - Saharan Africa

Investors all too often assign a uniform broad - brush risk rating to Sub-Saharan Africa. Yet, with over 40 nations and a landmass nearly twice that of Europe, there is clearly reason to suggest risk - return in Sub-Saharan Africa is unique across countries and specific to local experiences. In this paper we make the case that a one size-fits-all approach to risk in Sub-Saharan Africa is evidence of investor bias and irrationality. We argue that variations in the features of the local financial, political, economic, legal, tax, operational, and security environment must be accounted for. Further, in Sub-Saharan Africa as elsewhere, a country’s attractiveness as a destination for investment and its competitive advantage must be assessed from a strategic perspective. We build the case for a more complex approach to risk in Sub-Saharan Africa through the Private Equity and Venture Capital asset class illustrating unique local value drivers and risks are present. Finally, through regression analysis, we show that the Fama-French multifactor model does not explain investment returns in leading stock exchanges in Sub-Saharan Africa, again, supporting the case that local specific risk - return factors must be considered