The Africa risk spectrum – Moneyweb

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Welcome to the Supernatural Stocks podcast on Moneyweb, with your host The Finance Ghost – your weekly fix of local and international insights for investors and traders.

In January 2025, I released an episode of Supernatural Stocks that asked whether Africa was uninvestable. Looking back on it now, the notion will sound ridiculous – after all, Africa was a source of fantastic returns in 2025.

Listen/read: Is the rest of Africa uninvestable?

But was this because the risks suddenly disappeared, or because there was a seismic shift elsewhere in the world that gave Africa a break? And what can we learn from this?

Let’s look back on the past year of company performances across Africa and examine why things have gone the way they have.

A quick recap: Africa is hard

The underlying thesis of that podcast was that Africa wasn’t generating the returns needed to compensate for the risk involved. This is investing 101: if the risk-adjusted returns aren’t there, the capital won’t flow.

I pointed out that during the “lost decade” in South Africa, when capital was heading for the exit at every opportunity, several fast-moving consumer goods [FMCG] and retail groups were expanding into the rest of Africa and trying to get a foothold in key markets.

The results were disastrous.

There were a couple of exceptions, but those wounded companies have largely returned home and are now doing well, thanks to a focus on winning in a market that they actually understand – with perhaps some limited exposure in Africa where it made sense to keep it.

Shoprite is a very good example.

So yes, Africa is tough. But the particular frustration at the time of that podcast was the extent to which own-goals by African governments were creating additional risks.

The podcast was triggered by the news of an unexpected export duty on emeralds in Zambia in January 2025, absolutely crushing Gemfields’s business at the worst possible time. A couple of months later, this export duty was dropped.

This nightmare in Zambia came shortly after Gemfields had to deal with mine invasions in Mozambique at the ruby mine, coupled with broader security concerns in the region.

TL;DR [too long; didn’t read] – Africa is hard.

Gemfields is currently trading 20% below the levels seen at the time of that podcast, as prices for emeralds and rubies just haven’t been strong enough to drive a recovery.

With diamonds as perhaps the ultimate cautionary tale in this sector, there’s really no guarantee that prices will move higher and give Gemfields some breathing room.

There’s a lesson here about buying mining companies in Africa. The layers of risk are incredible.

Not only are you having to deal with all the stuff that makes Africa difficult – corrupt governments, security risks, ever-changing laws and taxes – but you’re also exposed to the underlying commodity itself.

Of course, that isn’t always a bad thing.

Alphamin’s rollercoaster ride

In the first few months of 2025, Alphamin’s share price approximately halved. The tin miner had to temporarily cease operations due to security risks in the DRC. It was another excellent reminder of how African markets can chew you up and spit you out.

But unlike Gemfields, Alphamin has pulled off a fantastic recovery since then.

The share price is all the way back to where it was in January 2025, which means those who bought the dip-of-all-dips have doubled their money.

Read/listen:

This isn’t because the risks are gone. Security risks are never gone in these regions. It’s because the tin price is trading at multi-year highs thanks to explosive demand in the artificial intelligence [AI] sector.

Yes, tin is critical in data centres, not just in the food aisle at your local grocery store.

I will take you back to investing 101: the market cares about risk-adjusted returns, and nothing else.

With tin prices flying high, investors are willing to take a risk on Alphamin. They know that the conflict could flare up again, but they can also see the momentum in tin prices and what that means for earnings before interest, tax, depreciation and amortisation [Ebitda].

The price-earnings multiple at Alphamin is 7.3x. It’s a whole lot lower than that on a forward basis, provided that the tin price momentum continues. And, of course, provided that nothing else goes wrong – which, in Africa, is never a certainty.

The macroeconomic plays

Gemfields and Alphamin are mining companies that have very focused exposure. They operate in specific regions and sell specific commodities.

As you can see from the share price performance differential in the past year, concentrated risks drive concentrated outcomes.

But there is another way to play the Africa theme – and it was the right move in the past year if you did it.

Sometimes, you need to find companies that are great proxies for a macroeconomic shift, rather than a specific commodity or product.

It’s important to have strong views in the market, but you must be willing to change your mind if new facts come to light.

[US President Donald] Trump only took office in January 2025, so it wasn’t clear at that stage just how much of an upheaval he would cause in developed markets.

Trump’s strategy to reset the playing field between the US and regions like Europe and China meant that African currencies were thrown a lifeline.

The dollar had been absolutely obliterating currencies like the Nigerian naira in 2023 and 2024, with companies like MTN Nigeria on the brink of disaster.

And then, all of a sudden, things changed. Instead of weakening rapidly against the US dollar, these African currencies starting appreciating. The rand is no exception, as we know.

Listen/read:

When a snake gives even the smallest chance of escape to the impala in its grip, that impala is going to do everything possible to wriggle free and run away. And that is exactly what these currencies did.

In the telecoms space, this change in trajectory for African currencies meant that capex budgets and foreign-denominated debt were no longer a disaster. In a stable currency environment, you can actually plan accordingly, even when the currency has stabilised at weak levels.

This is exactly why MTN has more than doubled since January 2025, as that group has extensive exposure to Nigeria and Ghana.

Vodacom is up more than 40% since those levels, with things looking up for the investment in Egypt. Vodacom’s East Africa plays were never in as much trouble as the economies in West Africa, hence why the share price hasn’t been as volatile as MTN.

I don’t mean to discount the role of management here, as they are obviously having to make decisions all the time to respond to opportunities, but it’s clear that the primary driver of the rally in these telecoms has been the broader macroeconomic improvement.

A less dramatic way to play the theme would’ve been certain banks.

Standard Bank especially comes to mind here, as it generates 40% of headline earnings from its Africa Regions business unit. Even without dividends, Standard Bank has returned well over 30% to investors since early January 2025.

Read:

Absa also deserves a special mention here. Its Africa Regions unit grew earnings by a casual 51% in the recently released results for 2025.

And this excludes the activity within the Corporate and Investment Banking business, where Africa contributed R5.5 billion in headline earnings compared with South Africa at R7.5 billion.

The banks have been given a boost by Africa, but they are far from being a pure-play on the region.

In both those cases, South Africa contributes more earnings than the rest of Africa. This is why the telecoms companies had much more of a reaction to what happened in Africa over the past year than the banks.

Finding yourself on the risk spectrum

There are two major lessons we can take from this.

The first is that being willing to adapt to a change in the environment is critical.

In January 2025, Africa looked like it was crushing any companies that came near it. But then we found ourselves in a new world, and Africa began to shine.

Being stubborn is foolish in the markets. If things change, you need to change as well.

The second is that there are many options on the risk spectrum. Even within the broader theme of Africa, you could go for the riskiest plays and take a punt on the mining houses.

Read: Sub-Saharan Africa set to outpace global growth

You can take much less risk by just buying the banks that have significant exposure to Africa, but plenty of exposure elsewhere as well.

Or you could dance somewhere in the middle and buy the telcos!

This is true for practically any investment theme you can think of. The beauty of the markets is that there are many different ways to play. It ultimately comes down to where you are most comfortable on the risk spectrum.