Nov 7, 2022 · 1h 10m · capital-allocators
Colin Smith and Farouk Miah - Empty Rooms: Investing in Africa (Capital Allocators, EP. 279)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, host Ted Seides interviews Colin Smith and Farouk Miah of All Africa Partners to discuss the contrarian opportunity in African public equities. They explore corporate fundamentals, currency and liquidity risk management, on-the-ground primary research, and disciplined concentrated portfolio construction in an overlooked market.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 17% of the talking time here. How this is scored →
Ted as informed peer 2.9 Guest teaching 3.9 Guest disagreement 0.8 Ted pushing back 0.2
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 58:00 Pushing back on Western risk perceptions of Africa
Colin forcefully attacks outdated Western perceptions of Africa as an uninvestable basket case, comparing Mozambique conflict fears to refusing to invest in South Korea due to North Korea.
Hardest push from Ted ▶ 22:14 Ted challenging on downside risksTed presses the guests on what risks exist in the asset class after hearing glowing metrics about fundamentals and empty room dynamics.
Biggest teaching moment ▶ 30:24 Educating on corporate governance and CEO educationColin systematically disabuses allocators of assumptions regarding poor emerging market standards by highlighting mandatory IFRS audits, rotation rules, and Western-educated management teams.
Ted holds their own ▶ 19:10 Ted steering public vs private market valuation dynamicsTed probes the disparity between institutional private equity enthusiasm in Africa versus overlooked public markets, prompting a detailed breakdown of 8x P/E vs 8x P/S multiples.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| AlphaSense AI Platform for Investment Allocators | 0 | 0 | 0 | 0 | Sponsor message and platform introduction for AlphaSense and Intap DealCloud delivered as a solo host monologue. | |
| Admired Leadership and AI Coaching with Alex | 0 | 0 | 0 | 0 | Host sponsor read for Admired Leadership followed by episode introduction and thesis framing around Africa as an 'empty room' asset class. | |
| Career Trajectories and Origins of All Africa Partners | 2 | 2 | 0 | 0 | Ted opens with a standard background prompt. Colin details his upbringing in Zimbabwe and Olympic rowing background, while Farouk shares his UK/Bangladesh heritage and MENA equities experience. | |
| Macroeconomic Lessons from Zimbabwe and MENA Transformations | 4 | 4 | 1 | 1 | Ted asks directly about hyperinflation in Zimbabwe and MENA market evolution. Colin explains holding physical hundred-trillion-dollar notes to underscore why macro policy discipline matters. | |
| Two Decades of Public Market Evolution in Africa | 3 | 4 | 0 | 0 | Ted asks about the 25-year institutional evolution of African public equities. Farouk gives detailed historical statistics on universe size, market cap CAGR, and bottom-line earnings growth. | |
| High-Conviction Holdings: Equity Group and MTN Nigeria | 3 | 5 | 0 | 0 | Colin and Farouk walk through core holdings Equity Group and MTN Nigeria, explaining tech adoption, mobile money growth, and single-digit P/E multiples with high dividend yields. | |
| Public Market Valuations Versus Private Equity Dynamics | 4 | 5 | 2 | 0 | Ted asks about public vs private equity opportunities. Farouk and Colin critique allocator preference for private equity, pointing out that private assets trade at 8x revenue while audited public equities trade at 8x earnings. | |
| Macro Tailwinds, Demographics, and Opportunity Costs | 4 | 4 | 2 | 2 | Ted prompts the guests to identify structural risks in the region. Colin playfully counters that the biggest risk is missing out, while Farouk argues that zero allocations ignore shifting global opportunity costs. | |
| Assessing Liquidity, Trading Dynamics, and Capacity | 3 | 5 | 0 | 0 | Ted queries how the team defines liquid versus illiquid assets and overall capacity. Farouk notes their $500M hard target to avoid the asset bloat that affected legacy African funds. | |
| Corporate Sophistication and Portfolio Fundamentals | 3 | 6 | 2 | 0 | Ted asks about bottom-up corporate sophistication. Colin dismantles Western misconceptions, noting 80% of portfolio CEOs hold Western degrees and all 20 exchanges mandate IFRS reporting. | |
| Currency Devaluation Frameworks and Country Discount Rates | 3 | 5 | 0 | 0 | Colin provides a granular breakdown of how they forecast currency depreciations using long-term inflation differentials and black market exchange signals. | |
| Inflation Lag, Market Pricing Power, and Uncorrelated Returns | 3 | 4 | 1 | 0 | Farouk explains the inflation transmission lag to African markets and emphasizes pricing power, while Colin notes African equities' low macro correlation to the US. | |
| Sourcing the All Africa 40 and Target Portfolios | 3 | 4 | 0 | 0 | Farouk details their filtering mechanism from 250 universe names down to the 40-stock quality list, emphasizing strict one-in-one-out discipline. | |
| Ground-Level Diligence and Analyst Coverage Vacuum | 3 | 5 | 2 | 0 | Colin points out that a third of the investment universe lacks sell-side coverage, making primary field diligence essential. Farouk terms casual generalists 'armchair Africa investors.' | |
| Managing List Turnover and Disciplined Stock Selection | 3 | 4 | 0 | 0 | Colin explains how the team protects itself against subconscious valuation anchoring before qualitative business moat assessments are completed. | |
| Execution Mechanics and Shareholder Base Composition | 4 | 4 | 0 | 0 | Ted asks about execution logistics, shareholder base profiles, and portfolio construction constraints, including their strict 30% per-country risk limit. | |
| Standing on the Shoulders of Predecessor Giants | 3 | 4 | 1 | 0 | Colin compares All Africa Partners to predecessor firms like Blakeney, SQM, and Arisaig, highlighting AAP's strict concentration and complete avoidance of unlisted assets. | |
| Downside Scenarios and Misconceptions of Risk | 4 | 6 | 3 | 1 | Ted asks what could go wrong in three years. Colin vigorously pushes back against Western media stereotypes portraying Africa as a monolith of poverty and conflict. | |
| Personal Insights: Hobbies, Olympic Silver, and Pet Peeves | 3 | 3 | 1 | 0 | Ted asks closing personal questions about hobbies, pet peeves, and Colin's experience winning Olympic silver in rowing. | |
| Key Mentors, Investment Philosophies, and Parental Lessons | 2 | 3 | 0 | 0 | Farouk and Colin reflect on formative mentors (Peter Lynch, Charlie Munger, Miles Morland) and parental wisdom before Ted closes the interview. |
Statements from this episode (38)
Miah: Africa is currently the most exciting emerging market for investment
“The Middle East where I was based is still predominantly emerging market in terms of trades, and obviously Africa is probably the most exciting emerging marketplace for us.”
Miah: Saudi Arabia and UAE show Africa's path to mainstream benchmarks
“In oh nine, Saudi where I lived and even Dubai, Abu Dhabi were Very much similar to Africa. Off benchmark. No one's really focusing on those areas. And fast forward 10 years, all of those markets became upgraded into the EM benchmark. Saudi Aramco got listed. …”
Miah: African equities generated a 7% to 9% USD CAGR from 2002 to 2020
“Between 2002 and 2020 the two decades overall, despite the last five years being quite difficult, it's been a reasonable period. So the market as a whole, if you just took the beta, the two 50 names that we're looking at, And the market grew at seven, eight, n…”
Miah: The African investable equity universe totals $500 billion across 260 companies
“The opportunity set, so when we exclude small caps and we exclude commodities, Today, there's around 260 names. In the early 2002, there's about a hundred names. So in terms of names, not significant growth, but when you look at market cap, more importantly, p…”
Miah: African equities outperformed other emerging markets in 2022
“Post-nineteen there was COVID, a lot of noise, but definitely this year is the first year in many that you've had outperformance by Africa. And very importantly to us, the bottom line continues to grow. The jaws are widening, but the bottom line continues to g…”
Smith: South Africa accounts for roughly 60% of investable African equities
“South Africa is a very, very big part of that, about 60% in terms of number of names, as well as market cap.”
Smith: All Africa Partners avoids Zimbabwe over currency repatriation and liquidity risks
“In terms of picking countries, I mentioned we didn't invest in Zimbabwe at the moment, and that's really on the basis of liquidity. Because we're investing in listed markets, and we promise to give money back to our investors if they ask for it back, we need t…”
Smith: Kenya's Equity Group compounded dollar EPS at 20% annually for 20 years
“It started as a listed entity around 20 years ago, and since then it has grown its dollar EPS by over 20% per annum.”
Smith: 98% of Kenya's Equity Group transactions happen electronically outside physical branches
“So they were very, very quick to adopt all sorts of technology over time to the point now where 98% of their transactions are electronic transactions that happen away from any sort of bank branch.”
Miah: African telecoms are the holy grail of voice, data, and mobile money
“Telecoms in Africa in many ways is the holy grail for telecom investors. Why? Because you still have voice growing at eight, nine, 10%. So voice is still high single digit growth. You have data growing at 20%. And then you have this unique component, which is …”
Miah: MTN Nigeria holds over 50% telecom market share in Nigeria
“So they're the, by far the most dominant telecom player in Nigeria, 50% and above market share.”
Smith: MTN Nigeria trades at a single-digit P/E and yields a 7% dividend
“And Ted, you can buy MTN Nigeria for single digit PE. You can buy Equity Group in Kenya for less than book value. Both of them pay us seven percent. Div yield at the moment.”
Miah: African public equities trade at 8x earnings while privates cost 8x sales
“So the valuations PE, you're paying eight times. On the private side, you're paying price to sales eight times for the similar exposure.”
Smith: African stock markets represent just 20% to 25% of regional GDP
“African stock markets are still, what, you know, 20 to 25% of GDP. Miles behind the rest of the world. You know, China is up at 80, 90%. The U.S. Is well over a hundred.”
Miah: Private equity firms are taking African public companies private at 4x earnings
“We've seen private equity firms coming to the public markets, and Picking off the best jewels, which are trading at four times P, five times P and taking them private. So we have seen that materialize over the last few years in Africa.”
Smith: Africa consistently accounts for half of the world's fastest-growing economies
“If you look at the top 10 or top 20 fastest growing economies in the world, Africa always makes up
Half of those, and has done for many years, and is expected to continue to do so.”
Smith: By 2100, four in every ten people worldwide will be African
“By the end of the century, that's going to be 40%.
By the end of the century, four in every 10 people are going to be African, and the urbanization story that goes along with that is absolutely colossal.”
Miah: Africa is a $3T economy, equivalent to the world's eighth largest
“Africa as a whole, it's a three trillion dollar economy, eighth largest equivalent economy in the world, one and a half billion people”
Smith: African equity markets underperformed the rest of the world from 2015 to 2019
“The African markets didn't perform particularly well really since 2015, 20 15 through 19. The African markets in general underperformed the rest of the world and in particular the U.S.”
Smith: Eight of ten All Africa portfolio CEOs were educated in the US or Europe
“Eight out of the 10 CEOs of the companies in which we invest in today were educated in either Europe or the US.”
Smith: IFRS accounting is standard across all 20 African stock exchanges we trade
“In all 20 of the exchanges that we invest in, IFRS is standard and required.”
Miah: All Africa Partners' portfolio generates a 33% ROE at an 8x P/E
“In terms of the portfolio, so our 10 stock portfolio, the current ROE is 33%. Into the dividend yield, we're talking about eight, nine percent dividend yield... And in terms of, again, valuations, the PE of the portfolio is today at eight, nine times PE.”
Smith: Our African portfolio trades at half the valuation and triple the yield of MSCI ACWI
“Basically, Ted, our portfolio trades at half the price and triple the yield of ACQUI.”
Smith: Our portfolio would gain 50% just by re-rating to historical median valuations
“If our portfolio today, just re-rated to their own historic valuations, would be up over 50%. In dollar terms.”
Smith: A 20-year US inflation differential perfectly explains African currency depreciation
“The most important thing for us, the starting point is that if we look at any of our floating currencies over a 20 year period, the inflation differential to the US perfectly explains the depreciation.”
Miah: In late 2022, several African countries had lower inflation than the US and UK
“Some of our countries have inflation levels lower than the U.S. And the U.K., which I can't remember the last time that was the case.”
Smith: Deglobalization will make African markets even less correlated with the US
“The world is not necessarily integrating any further at the moment. If anything, people are taking a bit of a step back, and we think that's going to make places like Africa even less correlated with the U.S. Markets”
Smith: One-third of the investable African equity universe has zero sell-side analyst coverage
“Out of our opportunity set, a third has zero analyst coverage whatsoever.”
Miah: Many African equities lost sell-side coverage as Wall Street downsized research teams
“And, you know, to further expand Colin's point, a lot of African names used to be covered, and then got dropped because of the last four or five years, and generally Wall Street and Southside being under pressure and letting go of people.”
Smith: Investors subconsciously anchor on valuation before even starting formal fundamental research
“One of the really key things we've learned is that the decision to pursue work on a particular company is usually done with an idea of what you think the valuation is before you've done the valuation.”
Smith: African equity trades require extensive offline legwork and negotiation
“There's a lot of legwork that goes into it and very few of the trades are just as simple as going to your online account and plugging in a number and pressing go.”
Miah: South African equities are institutional, while North and East Africa are family-owned
“So South Africa would be a more typical US or UK style shareholder list. So often the pension funds are the largest, the big asset management firms are also in the top three, top five, top seven. It's a very institutional heavy shareholder list. Whereas when y…”
Miah: We favor African companies where the founding family retains 20% to 40% ownership
“Generally, we do like companies where the management team are part of the founding family, and they still own 20, 30, 40% because of the alignment of incentives and interests.”
Smith: Inter-country correlation is much higher than sector correlation across African equity markets
“We know that inter-country correlation is much, much higher than sector correlation across Africa, for example.”
Miah: We explicitly avoid commodities to focus on other African macro themes
“Commodities is the only one where we explicitly avoid and everything else is game. Everything else is open to investments, but we do maybe have a bias towards areas or sectors which are exposed to the big themes in Africa.”
Smith: Some top US endowments have significant exposure and strong performance in Africa
“But although there aren't a lot of people investing in Africa today, we know of some of the most successful of the large endowments and foundations in the U S today have very significant exposure to Africa and are achieving very good performance in those marke…”
Smith: Reporting corporate results strictly in local African currency is extremely misleading
“In the context of Africa, I would say for me and probably for us, it's reporting in local currency without reporting in dollars as well. That can be extremely misleading in high inflation environments, and I really think that that shouldn't be allowed, basical…”