Combining top down data such as GDP with bottom up data such as consumer confidence can yield to better investment decisions in Africa, according to a whitepaper report by KASI Insight.

“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,” the report said.

Given that capital markets 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. 

In addition to lack of data and trading restrictions,investors also face low liquidity and market depth.

Trading volume in most frontier stock markets is still relatively low and trading costs are high,which further disincentivizes trading.

“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.”

Consumer confidence is an economic indicator that measures how confident consumers are about the overall state of the economy. It also measures how confident people feel about their income’s stability.

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 and the importance of consumer confidence data.

It also provides a case study on what consumer confidence data is revealing about the Ivory Coast market

The paper examines 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.

In addition, tests the consensus forecast of economic growth for specific countries.

"We are thrilled to be working with frontier investors and managers like Africa Capital Group to support their investment decision process in Africa by providing much-needed bottom-up data,” commented Yannick Lefang, Founder and CEO of KASI Insight.