Delegate biographies: Learn more about the panelists
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Executive summary
• African countries with relatively large populations are core targets for foreign investors
• High commodity prices but also, crucially, improvements in economic and political governance and the growth of middle-class consumer spending are driving investment
• Frontier markets, a category that includes most of Africa, are particularly attractive to investors seeking outperformance
• Nigeria’s banking reforms, the growth of the equity market and middle-class demand have greatly stimulated the retail sector as credit has become increasingly available
• The credit crisis in the west has had a differential effect on Africa. Some investors have had to cut back on investment because of the need to sort out problems at home; others recognize that high-yielding opportunities that have become closed off at home are still available in Africa
• South Africa faces a softening economy, with food-price inflation and continuing electricity-supply problems. But there is underlying stability in banking, judicial and political systems
Nigeria debate: Nigeria leads the continent
Published July 2008 |
Euromoney Investor interest in Africa as a whole, and in Nigeria in particular, has increased markedly over the past 18 months. Why are investors and bankers more interested, and is this sustainable?
HH, Merrill Lynch From an equity perspective, Africa consists of three zones. There’s North Africa, then South Africa, which is a deep, liquid market, with metals, mining, and cross-listing with London. And then of course the sub-Saharan zone is in between the two. Whenever an investor asks me about opportunities in Africa, they generally mean sub-Saharan Africa. So take our African Lions product, which is a basket index product. We’re focused on equities and public equities. One of the chief things when you construct an index is deciding on the criteria. How do you judge what’s in there? We’re not fund managers. We’re not telling you: "We love these companies and we’ve looked at that." We’re simply saying: "This is a good way to invest in this theme. This is an easy-access instrument." So we put hard constraints on the competition of, say, South Africa, which we limit to 10%, or Egypt, which is even less. If you simply do it by the size of the market you end up with a South Africa, Egypt, Morocco basket, and you lose out on the sub-Saharan piece altogether. So again, with a focus on the sub-Saharan we put those constraints in it. And the fact that investors want basket products like this could be taken to mean that from a macro perspective they view Africa as a single opportunity or investment play although they know that each country is a different story.
BS, Helios I would define investors’ Africa as where the population centres are. Without being rude, a country with 100,000 people is not going to make a difference. What happens in four or five specific countries determines what happens in the rest. And it’s those four or five that I would refer to as Africa. These are: South Africa, Nigeria, Kenya, and Angola. The Democratic Republic of Congo is a country of 60 million people, with the biggest supply of copper in the world, but it is not yet stable enough to be included.
NR, Citigroup And you do have countries like Tanzania and Uganda, for example, which could be the next Kenya. They have already shown a lot of progress.
Drivers of investment into Africa
Euromoney What is driving investor interest in these countries?
GT, Standard Bank Group There’s been an evolution in terms of the underlying social and economic frameworks and, simultaneously, growth. There are four factors. Obviously, commodity prices have played a huge part in increasing exports and foreign exchange reserves for a number of countries, although not all. Second, there’s been a very positive shift in macroeconomic fundamentals in terms of how central banks are running economies. The Nigerian banking reforms and Nigerian pension reforms have been forward-thinking, for example, and that has given investors confidence in the future. Third, with some obvious notable exceptions there has also been an improvement in political landscapes. The fourth point applies to global emerging markets in general but Africa in particular. Consumer-led spending is growing, driven by an increasing middle class.
NR, Citigroup Commodity prices underpin the story but the key is that basic reforms have taken hold in a lot of economies, making them more robust than in the past. The same growth in commodity prices 10 years ago would not have given you the outcomes that we see today. Countries, regulators, and governments have done a lot of work to improve the investment landscape, with legal and other reforms fundamental to the creation of debt and equity markets. The question is one of sustainability. That still requires work on the fundamentals such as education, transparency, accountability and basic infrastructure. To maintain the same rate of growth and to extend it and realize its potential, fundamental issues such as electricity and power, ports and roads need to be addressed. Even Africa’s most developed economies are being held back by infrastructure issues.
HH, Merrill Lynch From a macroeconomic perspective Africa is worlds away from what it was 10 years ago with Brady bond debt from Côte d’Ivoire and so forth. The basic infrastructure, political and macroeconomic situation is much more stable. Africa has greatly benefited and will continue to benefit from the global demand for raw materials, commodities and so forth. Whether the current level continues or not, the growth rate will continue to be substantial, with India and China as well as the developed markets’ demand for that.
BT, ABR/Nepad Business Group Fundamentally, every state in Africa is at least under a democratic system, if not under democratic rule. That is new. Secondly, there is a communication revolution in progress. History will come to record GSM as one of the biggest agents of change in Africa, allowing people to gain an understanding of what’s happening with their neighbours, in their region, and in the whole continent, and how they relate to the rest of the world. There are, of course, reforms in the banking and finance sectors of the economy, openness in the oil, gas and extractive industries, and greater accountability in both public and private sectors. All these, in addition to the removal of the debt overhang problem following the debt write-off deal from the G8 countries in 2005, have contributed in no small way to increase investment flows to Africa. The challenge now is to ensure that these modest gains are sustained and also to make them permeate the private sector as well as all countries in sub-Saharan Africa. That’s important. It is already happening, but the growth will come with the understanding of the element of competition, and a feeling of doing better than the next country.