Category: How to Invest in Africa

How to Collect Dividends When Investing in African Stocks

Dividends are a key component of a stock’s investment return. But collecting and re-investing them can be a challenge for foreigners investing in African shares.

Here are some tips to make the process as efficient as possible.

When it comes to investing in stocks, most investors dream of big capital gains — share prices shooting through the roof.

But, according to Stocks for the Long Run author, Dr. Jeremy Siegel, dividends are arguably a much more important component of a stock’s investment return.

His research found that dividends accounted for roughly 75% of the US stock market’s total return up until the 1990s.

So, as a foreigner investing in African stock markets, it’s important not to discount the value of these company payouts.

This is easier said than done.

The Check is in the Mail … Arrgh!

Without careful preparation, non-resident investors will typically receive their dividends in their postal boxes, in the form of foreign-denominated checks.

These are a downright hassle to cash.

Trust me. I’ve got lots of firsthand experience.

I confess to having a safe deposit box full of uncashed dividend checks — denominated in various African currencies — that were mailed to my home address. Unable to cash them at my local bank branch, I’ve left them to molder there until I find time to deposit them.

So, if you plan to invest directly on a foreign stock exchange, how can you avoid ending up like me with a folder full of uncashed dividend checks?

1. Ask your broker to collect dividends on your behalf

Your first step should be to clarify dividend collection procedure with your local broker. When opening a brokerage account, ask them to collect your dividends and deposit them directly in your trading account, if possible. That way you can decide whether to reinvest or withdraw them at your leisure.

Many African stockbrokers do this as standard procedure. Still it’s important to confirm this arrangement with them in advance.

2. If your broker is unable to collect dividends, open a local bank account

Regulations in some African countries prohibit brokers from collecting dividends on their clients’ behalf.

Photo: Quiquemendizabal
Photo: Quiquemendizabal

Mauritius is one such country. Therefore, if you would like to be spared trying to cash a check denominated in Mauritian rupees at your bank’s teller window, you must open a Mauritian bank account.

This involves a bit of extra paperwork, but after it is set up, your broker will pass on your bank details to the share registrar, and your dividends will be deposited into the account where they can be withdrawn or transferred to your trading account.

3. If opening a local bank account is impossible, ask your broker for a nominee account

Opening a bank account in Kenya is not as simple as it is in Mauritius. As Belgrad Kenne of investment advisor, Phase One Associates, explains, “No bank in Kenya will open an account in absentia. They all require (by central bank regulations) a physical appearance (at a Kenyan bank branch).”

To circumvent this problem, Kenne says Kenyan brokers like AIB Capital allow foreign investors to open nominee accounts.

In a nominee account, all shares purchased by the investor are held in the broker’s name. The broker opens portfolio and cash accounts on each investor’s behalf. When dividends arrive, they are deposited into the investor’s cash account where they can either be reinvested or withdrawn.

If you opt to open a nominee account, clarify that you will retain full responsibility for buy and sell decisions on the account. You don’t want your shares to be traded without your authorization.

How to Deposit a Foreign Check

So, we’ve covered ways to make sure that you never receive a foreign dividend check in the mail. But what if you’ve already received one? How do you go about cashing it?

Unfortunately, I haven’t encountered any US banks that will cash checks denominated in African currencies. If you’re an account holder, however, most banks will offer to send the check to collections. There, the bank or a third party processor will attempt to collect on the check in US dollars from the issuing bank.

This process can take a long time. Sometimes months. On top of that, most banks will charge a fee for the service and the exchange rate you receive on the foreign currency isn’t likely to be very good.

I contacted a few banks to see how much they charge customers to clear foreign checks. Here’s what I found out:

[table id=197 /]

[Note that I haven’t seen currency conversion rates at TDBank or WellsFargo, so they may not be any better than Bank of America’s.]

So, there you have it. The cheapest, most efficient way to collect dividends on African stocks from afar is to have your broker deposit them directly in your trading account, via a nominee account, if necessary. Doing so minimizes fees and hassle, and helps to ensure that you receive the best possible exchange rate when you eventually decide to repatriate your funds.

Your Turn

Have you struggled with this problem? What ways have you found to solve it? Let’s hear your thoughts in the comments!

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How to Invest on the Malawi Stock Exchange

A number of readers have been wondering about how to open a brokerage account on the Malawi Stock Exchange.

I can understand why. The little market in Blantyre posted the best return of any sub-Saharan stock exchange in 2013. Its All Share Index is up 75.2% over the past 12 months in US dollar terms. Performance like that would make even the most jaded of investors take notice.

So, what do you need to do to put money to work in the warm heart of Africa?

Here’s how to get started.

A number of readers have been wondering about how to open a brokerage account on the Malawi Stock Exchange.

I can understand why. The little market in Blantyre posted the best return of any sub-Saharan stock exchange in 2013. Its All Share Index is up 75.2% over the past 12 months in US dollar terms.

Performance like that would make even the most jaded of investors take notice.

So, what do you need to do to put money to work in the warm heart of Africa?

Here’s how to get started.

How to Open a Malawian Brokerage Account

Four brokers are licensed to trade on the Malawi Stock Exchange. You can find contact details for each of them here.

I emailed all of them, asking if they accepted foreign investors, how much they required to open an account, and what documentation was necessary in order to do so.

The only response I received came from African Alliance Malawi.

You’ll note that the stock exchange website doesn’t include an email address for them, so try sending your account opening query to this one: info@africanalliance.com. Make sure to specify that you’re interested in opening a Malawian trading account.

African Alliance does, in fact, accept foreign investors and doesn’t require a minimum amount before opening an account. But they do require some documentation.

As an investor, here’s what you will need to provide them:

1) A certified copy of your passport or driver’s license
2) Proof of your residential address – e.g. a recent utility bill
3) A recent bank statement for the account that will be your source of funds
4) And a completed African Alliance account opening form.

Fund Your Account

After opening your trading account, your broker will provide you with its bank details so that you can send funds. The most efficient way to do this is via wire transfer. If you haven’t sent an international wire before, I suggest that you take your broker’s bank details to your local bank branch and ask them to walk you through the process. They’ll make sure that your funds arrive securely. Note that most US banks charge about $25 for outgoing international wires.

Trading Costs and Taxes

Before you begin buying and selling Malawian stocks, be sure you understand the trading costs involved.

Malawian brokers charge commission on a sliding scale based on the value of the transaction. For amounts greater than MWK100,000 (approximately $250), however, the commission amounts to 1% of the total value traded.

There is also a government surcharge of 17.5% on the amount of this brokerage commission. And a flat exchange fee of MWK50.00 per transaction.

So, for a transaction of MWK1,000,000 (approximately $2500) expect to pay roughly MWK11,800 worth of commission and fees (about $30.00).

There are also some taxes to take note of, too. Malawi levies a 10% withholding tax on dividends paid to non-residents and capital gains are taxed at a rate of 30% unless the stock has been held for more than seven years.

Submitting a Trade Order

Now it’s time to do some research into the various companies listed on the exchange to figure out where the best opportunities lie. Your broker can likely provide some guidance here, but if you’re more of an independent sort and want to conduct your own research, the financial statement library should give you a few numbers to crunch.

After identifying your hot stock pick, it’s time to tell your broker to buy it for you.

All that needs be done is to submit a written trade instruction. Some brokers may have a special trade mandate form to complete, but, for others, a simple email may suffice.

Keep in mind that many shares listed on the Malawi Stock Exchange are rather illiquid, so I advise specifying a limit price for all of your orders. This will help you avoid paying significantly more for your shares than you had intended to pay.

Your broker will then execute your trade and send you a contract note that specifies the buy or sell price, commissions, and fees. Settlement of share trades takes up to five business days after the trade date in Malawi, so if you’ve sold shares, don’t expect to receive the proceeds of a sale before then unless you’re willing to incur a penalty to settle the trade more quickly.

Mission Accomplished

Follow these steps and you’re all set to begin investing in Malawian stocks. That wasn’t too bad, was it?

The process of opening a foreign brokerage account can be confusing. If you found this walk-thru to be clear as mud, please don’t be shy. Post your questions in the comments, and I’ll do my best to get answers for them.

Related Reading

How to Invest on the Dar es Salaam Stock Exchange
How to Invest on the Lusaka Stock Exchange
How to Invest on the Zimbabwe Stock Exchange

How to Invest on the Johannesburg Stock Exchange

South Africa is far and away the most economically developed of African states, and, as such, will likely be the continent’s economic gateway for the foreseeable future.

Truth be told, however, the Johannesburg Stock Exchange (JSE) isn’t exactly the most bullish of markets these days. In fact, the market is now at its lowest point in nearly two years.

But this isn’t necessarily bad news for value investors. Falling prices mean an increasing number of bargains are on offer. Earnings multiples are dropping and dividend yields are rising.

And because the Johannesburg Stock Exchange is one of the most sophisticated in the world, investors can scoop up these deals with a click of their mouse. The market’s accessibility and convenience make it an ideal place for new Africa investors to get their feet wet.

Here’s how to get started.

South Africa is far and away the most economically developed of African states, and, as such, will likely be the continent’s economic gateway for the foreseeable future.

Truth be told, however, the Johannesburg Stock Exchange (JSE) isn’t exactly the most bullish of markets these days. The MSCI South Africa Index has sunk more than 13% over the past 12 months after accounting for depreciation of the nation’s currency, the rand. In fact, the market is now at its lowest point in nearly two years.

But this isn’t necessarily bad news for value investors. Falling prices mean an increasing number of bargains are on offer. Earnings multiples are dropping and dividend yields are rising.

And because the Johannesburg Stock Exchange is one of the most sophisticated in the world, investors can scoop up these deals with a click of their mouse. The market’s accessibility and convenience make it an ideal place for new Africa investors to get their feet wet.

Here’s how to get started.

Comparison Shop South African Stockbrokers

Your first step is to open an account with a South African stockbroker.

Dozens of stockbrokers facilitate trades on the JSE, but only 12 offer online share trading to individual investors.

Online trading platforms are still relatively new to Africa, and they’re not a necessity to invest successfully there, but I find them more convenient. So, I limited my broker research to those that offer them.

I sent an email to each one, asking them if they catered to foreign investors, how much of a deposit they required to open an account, what documentation was required, and for a copy of their fee schedule.

Five of the brokers confirmed that they do take foreign clients and responded to my questions within three business days. I’ve listed them below with their minimum initial deposit amounts, monthly administration fees, and my calculation of the cost of a hypothetical ZAR20,000 trade through each one.

Broker Minimum Initial Deposit Monthly Admin Fee Fees and taxes on ZAR20,000 (roughly $2,000) share purchase
Anglorand Securities $50,000 ZAR121.46 (roughly $12.00) ZAR270.96 (roughly $27.00)
Imara S.P. Reid None ZAR20.83 (roughly $2.00)  ZAR285.96 (roughly $28.00)
Nedbank Online Trading  None (but does charge ZAR250.00 account opening fee) ZAR33.50 (roughly $3.00)  ZAR200.96 (roughly $20.00)
PSG Online None ZAR40.00 (roughly $4.00) ZAR240.96 (roughly $24.00)
Sanlam iTrade  ZAR1,000.00 (roughly $100.00) ZAR50.00 (roughly $5.00) or monthly brokerage in excess of ZAR300.00 (roughly $30.00) ZAR235.96 (roughly $23.00)

As you can see, commissions and fees are pretty comparable across all five brokers, but Anglorand requires a much larger deposit than its peers.

[Be aware that, for South African residents, value added tax is added to many of the above items. If you are not a South African resident, you should not be charged value added tax (VAT). If you do much trading, this can be a significant charge as it amounts to 14% of brokerage and fees. So keep an eye on your trading statements and ask your broker to refund any VAT should it appear.]

Discretionary vs. Non-Discretionary Accounts

Note that some of these brokers offer discretionary accounts. Discretionary accounts give brokers the authority to make trades in your account without the consent of the account holder. They typically are managed in a way that the broker believes is the best way to achieve the investment objectives and acceptable levels of risk that you specify. It’s like having your own personal portfolio manager. You might want to consider this option if you aren’t interested in doing your own investment research.

I’m a bit of a control-freak, so I personally prefer non-discretionary accounts. I want to make my own investment decisions and don’t like the idea that a broker could buy or sell my shares without my permission. If you’re at all like me, make sure you open a non-discretionary or “execution only” account.

What Documentation Will You Need?

To open an account be prepared to provide the following:

  • Certified copy of your passport
  • Bank details (i.e. a canceled check or a certified copy of a recent bank statement)
  • Copy of a recent utility bill showing your physical address (not older than three months)
  • Signed letter to your broker stating that you are not registered with the South African Revenue Service for tax in South Africa (some brokers may require your Social Security number)

You will also need to fill out a form or three for the broker that you’d like to open a trading account with. Here’s a rundown as to what else is required by each one.

  • Anglorand requires completion of a 12-page trading mandate (only the first six are necessary for non-discretionary accounts) and a three-page particulars schedule.
  • Imara SP Reid’s application is a 14-page monster. Fortunately, individual investors who wish to manage their own accounts can skip many of the sections.
  • Nedbank, PSG Online, and Sanlam iTrade all offer nifty online registration applications. Find Nedbank’s here,PSG’s at this link, and Sanlam iTrade’s right here.
How to Fund Your Brokerage Account

After opening your trading account, your broker will provide you with its bank details so that you can fund your account and begin buying shares.

The most efficient way to do this is via wire transfer. If you haven’t sent an international wire before, I suggest that you take your broker’s bank details to your local bank branch and ask them to walk you through the process. They’ll make sure that your funds arrive securely. Note that most US banks charge about $25 for outgoing international wires.

Making a Trade

The actual process of making a trade varies depending on the broker you use, but from what I’ve seen their trading platforms look pretty intuitive. You simply buy and sell shares in a similar way that you would through an ETrade or TDAmeritrade account.

Collecting Dividends

In my experience, collecting dividends paid by your South African stocks is a piece of cake. If you bought the shares through an online broker, your dividends will deposited directly into your trading account. You can then decide whether to bring the cash back home or to reinvest them in the market.

Clear as Mud?

Do you have questions about investing on the Johannesburg Stock Exchange that we haven’t covered here? If so, let’s hear them in the comments!

Related Reading

The Case for Investing in South Africa
How to Invest on the Nigerian Stock Exchange

How Can I Invest in the African Seed Industry?

Hi Ryan,

This is going to sound a little strange, but both my girlfriend and I, days apart, had dreams where we were shown that it would be good to invest in African seeds. It was clear in both dreams that it had something to do with actual plant seeds.

I’ve never received investing advice in a dream before, but when my girlfriend had the same advice in her dream, after not knowing anything about my dream, I started to wonder.

Hi Ryan,

This is going to sound a little strange, but both my girlfriend and I, days apart, had dreams where we were shown that it would be good to invest in African seeds.  It was clear in both dreams that it had something to do with actual plant seeds.  

I’ve never received investing advice in a dream before, but when my girlfriend had the same advice in her dream, after not knowing anything about my dream, I started to wonder.  

Anyway, I’ve been doing some reading on what is happening with the seed industry in Africa (and the world) and I’ve now become very interested in this topic.  It seems to me that there is a growing demand for non-GMO seeds, and I think Africa could have a lot to do with this shift in attitude.

Do you have any advice for a would-be African seed commodity investor?   I have about $10,000 that I keep freed up as high-risk money.

Sincerely,
Seedless in Seattle

 

Hi Seedless,

I believe it may actually be possible to make your dream a reality.

Photo by CIMMYT
Photo by CIMMYT

Seed Co Limited claims to be Africa’s leading seed company, and its shares trade on the Zimbabwe Stock Exchange. They develop and market a wide variety of crop seeds (maize, wheat, cotton, and soya) in 15 African countries. Their operations are concentrated in Southern Africa with Zimbabwe, Zambia and Malawi accounting for more than 80% of revenue. Seed Co’s goal, however, is to “dominate agro-industry” on the continent, so they’ve recently been making moves into Eastern and Western Africa, too.

While the company does not appear to have a strict stance against GMO seeds (they have a research agreement with Monsanto), Zimbabwe has banned GMO seeds, and the company’s chief executive recently said that GMO seeds aren’t a panacea for raising crop yields.

But before you wire money to Zimbabwe, keep the following in mind.

In the company’s 2013 fiscal year (which ended on March 31), earnings per share dropped a gut-churning 35%. This resulted, in large part, from a sharp reduction in grain seed sales due to low commodity prices and power supply problems, and from the dramatic revaluation of the Malawian kwacha. These things are largely out of management’s control, but such wild reversals in fortune are something to steel yourself for if you intend to become a shareholder. I’d hate for your dream to become a nightmare.

Seed Co’s share price has dropped over 9% so far this year and now sports a P/E ratio of 10.6. Management has not yet announced a 2013 dividend, but if it remains at the same level as last year (not a certainty), the stock’s yield would be 2.4%.

Because the company’s 2013 results have just been released, I’d watch the stock’s price closely over the next few weeks. A big drop might offer a nice buying opportunity, and, if management maintains the dividend at current levels it could signal confidence in improved results for 2014.

If you’d like to buy Seed Co stock, you’ll need to open an account with a Zimbabwean stock broker. You can find more info on that right here.

Happy investing!

Ryan

New ETF Makes Nigerian Stocks More Accessible Than Ever

I literally jumped out of my chair last week when Jan Schalkwijk told me a new Nigeria ETF had just listed on the New York Stock Exchange.

Why was I bouncing around my office like I’d hit a buzzer-beating jump shot?

Because, at this moment, I believe the Global X Nigeria Index ETF is one of the most accessible, pure, and cost-efficient ways for US retail investors to tap into the Sub-Saharan growth story.

I literally jumped out of my chair last week when Jan Schalkwijk told me a new Nigeria ETF had just listed on the New York Stock Exchange.

Why did the news provoke me to bounce around my office like I’d hit a buzzer-beating jump shot?

Because, at this moment, I believe the Global X Nigeria Index ETF (Ticker: NGE) is one of the most accessible, pure, and cost-efficient ways for US retail investors to tap into the Sub-Saharan growth story.

Invest in Nigeria on a Shoestring Budget

With a GDP growth rate well above six percent, a gigantic, young population, and a reforming financial sector, I am very bullish on the Nigerian economy. In fact, I wrote about several mutual funds with exposure to the country just two weeks ago.

Happily, NGE’s arrival on the scene has made that post a moot point.

Here’s why.

First, NGE gives you a pure play on the Nigerian stock market very cheaply. How cheaply? Its expense ratio is a mere 0.68%. Compare this to the other funds with significant Nigerian holdings.

[table id=183 /]

Not Too Much 0f That Oily Feeling

Second, NGE’s portfolio is nicely skewed toward assets that stand to benefit from the growth of Nigeria’s consumer economy.

Less than 25% of the index is invested in oil and gas companies. The remainder is invested largely in banking (45%), consumer goods (25%), and cement (6%).

Here’s a brief introduction to the ETF’s ten largest holdings.

1. Guaranty Trust Bank (GUARANTY:NL) — Weight: 10.0%

Nigeria’s largest bank stock just reported earnings growth of 69% on the back of double-digit loan and deposit growth. Now it has its sights set on East Africa. The CEO this month announced its intention to enter the Kenyan, Tanzanian, and Ugandas markets via the purchase of a profitable small to mid-tier local bank.

2. First Bank of Nigeria (FBNH:NL) — Weight: 9.9%
Who’d have thunk that a Nigerian bank with a nearly 120-year history would be one the Nigerian Stock Exchange’s most dynamic stocks? Shares of FBN, which boasts the country’s largest branch network, have gained 135% in local currency over the past 12 months.

3. Zenith Bank (ZENITHBA:NL) — Weight: 8.1%
Shares of this fast-growing lender have just hit the London Stock Exchange in the form of Global Depository Receipts. In spite of it hitting a four-year price record, Zenith shares still trade for just a little more than seven times earnings.

4. Nigerian Breweries (NB:NL) — Weight: 7.4%
This affiliate of Heineken is Nigeria’s largest beer-maker. Earnings were flat in 2012 due to an expensive expansion strategy.

5. Access Bank Nigeria (ACCESS:NL) — Weight: 4.6%
It may be substantially smaller than GTBank, FBN, and Zenith, but Access is definitely a bank to watch. It more than doubled profits this year and now trades at a P/E ratio of just 5.3 and sports a dividend yield of 8.6%.

6. Nestle Nigeria (NESTLE:NL) — Weight: 4.6%
This consumer goods giant is figuring out the best ways to get its products into the hands of lower-income customers. The upcoming earnings report sounds as though it might disappoint some people, but the stock is up nearly 140% over the past 12 months.

7. United Bank for Africa (UBA:NL) — Weight: 4.5%
Yet another bank. This one has a larger geographic footprint throughout sub-Saharan Africa and has tripled its share price over the past year.

8. TGS-NOPEC (TGS:NO) — Weight: 4.4%
This Norway-listed firm provides geological data to oil and gas exploration companies, some of whom have substantial interest in Nigeria. To be honest, I’m not entirely sure why this company merits such a heavy weight in this portfolio.

9. Subsea 7 (SUBC:NO) — Weight: 4.4%
Another Norwegian company that caters to offshore oil drillers, Subsea 7 specializes in the maintenance and refurbishment of oil rigs. This company’s inclusion in the index also seems odd.

10. Saipem (SPM:IM) — Weight: 4.2%
An Italian oil drilling firm that does a significant amount of work off the Nigerian coast.

Other significant ETF holdings include Guinness Nigeria, Dangote Cement, and Unilever Nigeria.

Is It a Game-Changer?

The Global X Nigeria Index ETF presently trades at a premium of roughly 3% to the value of its underlying portfolio, but in my view this is a small price to pay for taking the hassle out of opening a Nigerian brokerage account.

Sub-Saharan stock markets are hitting the world stage. These are exciting times.

[Disclosure: I have a beneficial interest in shares of Guaranty Trust Bank and Zenith Bank through my work with Africa Capital Group.]