Africa debate: Africa’s future is within reach

By:
Elliot Wilson
Published on:

For investors, the continent is not the high-debt, high-distress place it was a decade ago. It has come a long way in a short time. Now it is 54 countries that are generally fast growing and with single-digit inflation.


Africa debate: Participants


EXECUTIVE SUMMARY

• Africa should be the top investment priority of all emerging markets
 
• But for it to become a sustainable investment destination, countries and companies will need to get to grips with second generation reforms, modernize and become more transparent

• A lack of physical and electronic infrastructure will remain a hindrance to development but can also offer valuable investment opportunities

• Regional banks are underleveraged compared with their EM peers, so there are big opportunities in the financial sector

• Nigeria is driving the continent’s growth and will eclipse South Africa in the long term

Elliot Wilson, Euromoney Where is the potential in Africa’s investment story right now, and where are the bottlenecks?

RH, Invest Africa It’s always better to invest where there’s a rising tide. The rising tide is in Africa and will be for the next 10 years. When you look at the emerging markets, Africa should be your top priority. But remember Africa is 54 countries, so as an investor you have to make a conscious decision where you want to invest. For me, the great locomotive for growth is Nigeria. South Africa remains an important country, even though it will be eclipsed by Nigeria’s economy in the long term. With the so-called secondary countries, we like Ethiopia, which should gradually open its borders to foreign direct investment. Ghana’s issues are temporary; the country generally has decent management and governance. We also like Senegal, Côte d’Ivoire and Zambia. And another country with huge upside is the Democratic Republic of the Congo (DRC), not just because of the population, but because of shining political lights like the country’s prime minister, Augustin Ponyo. Then further along the line you have Mozambique and Kenya, where the oil and gas finds in the northern provinces will drive their economies for decades.

VK, Nedbank Most African countries are still in the catch-up phase. Almost all are addressing infrastructure-deficit problems and have increased their share of public investment to GDP. But for Africa to become a sustainable investment destination, countries need to get to grips with second-generation reforms enabling them to modernize and extricate themselves from poverty. I’m bullish about the East African Community (EAC), whose integrated approach to cross-border infrastructure, opening-up of labour markets and removal of non-tariff barriers are advantages. One cannot ignore Nigeria, but I feel it could be doing more – reforms have stalled and that is a pity. Ghana, unless it gets to grips with its fiscal problems, will keep running on the spot. Mozambique can’t be ignored because of huge new gas finds. Gabon, Angola and the DRC are using surpluses to build infrastructure. The laggards are Malawi, Swaziland and war-torn nations such as South Sudan and the Central African Republic.

Euromoney Paul-Harry, are you an east Africa or west Africa advocate?

PHA, Ecobank I’m a pan-Africa believer. Ten years ago, investing in Africa was a risky bet. Today, not considering Africa as an investment destination is equally risky. The vast majority of African countries will see substantial growth in the future. In the shorter term, you still need to be extremely cautious and there are three factors to keep an eye on. The first is an economy’s resilience to economic shocks. Second, you must ensure that economic growth in a particular country is above the African average, so north of 5%. Finally, currency risk: is it increasing or is it diminishing? In the shorter term, Ethiopia, Mozambique and Côte d’Ivoire fit those factors, plus we also like Nigeria and Uganda. In terms of sectors to invest in, we see consumer-facing sectors outperforming, so you need to look at banking, real estate, which will be a real game-changer, and the retail market.

FA, Silk Invest East Africa is a very interesting region, where the digital revolution happening in countries such as Kenya and Rwanda is transforming the region with the use of mobile technology. With regard to sectors, agriculture remains a key growth driver. Another sector is tourism, which hasn’t been properly tapped. Southern and eastern African countries have led the charge, while western Africa has been slow to build up this sector. In terms of challenges, we believe there is an urgent need for infrastructure and finance to help foster economic growth. An average company in Nigeria has to contend with intermittent power supply and poor road infrastructure, which increase the cost of doing business.

BB, Chapel Hill Denham If Africa isn’t part of an investor’s outlook or strategy within the next five to 10 years, they would be making a very big mistake. The country that underpins Africa’s growth story remains very much Nigeria. In the next five to seven years, investors will come to view Nigeria’s importance to Africa in the same way they currently view China’s importance to Asia. The rebasing of Nigeria’s GDP, moving the base year from 1980, will demonstrate that it is Africa’s largest economy, and probably by as much as 30% to 35% larger than South Africa. If you then add in the fact that 50% to 60% of economic activity in Nigeria remains informal and unmeasured, you’re potentially looking at a top-20 global economy. One key reform that has the ability to transform Nigeria’s potential into a compelling reality is the power-privatization programme, which is the most ambitious the world has ever seen. Ten new plants built just under a decade ago are about to be privatized, well before the third quarter of 2014. Just that transition alone will attract much-needed investment capital to power and take generated capacity from 3,600MW to over 12,000MW by 2018. You will find that a hamstrung Nigeria with annual growth of 6.5% will begin to grow at 8% to 10%.