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Africa: Opening up the last frontier at last?

Africa’s banking and capital markets are showing encouraging signs of maturity.

Interest in investment opportunities in sub-Saharan Africa outside South Africa is growing. Is this just another bubble? Over the past 40 years, there have been six “false dawns,” where hope in Africa has been ignited by high commodity prices, only to be snuffed out by economic collapse during a commodities downturn.

Despite this, there is an emerging consensus that the boom in sub-Saharan Africa will attract more money, and for longer, than previous cycles. The IMF’s 2007 regional economic outlook for sub-Saharan Africa, released in October, predicts that average GDP growth for the region will accelerate from 6% in 2007 to 7% in 2008. The region’s inflation and GDP growth rates have not been so positive for 30 years.

Median government bond yields in sub-Saharan Africa, until recently as high as 30%, fell below 15% last year. This is allowing the private sector cheaper capital as local banks are forced to make more of corporate lending. Equity markets are also developing. Bourses in the region now number 16, compared with just five in 1989. Market capitalization is approaching $100 billion: tiny considering the geographic size of the region but huge compared with the $14.5 billion of 2002.

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