May 13th, 2013 by Tom Minney
African countries (apart from South Africa) are set to place $7 billion of debt this year, buoyed by low interest rates and a huge global appetite. According to this article in Bloomberg Businessweek by Roben Farzad, this year’s debt issues will be more than the previous 5 years combined and African capital markets are feeling the boom.
No wonder international investors who are “grabbing for yield and growth” (according to Farzad) are looking to Africa which the International Monetary Fund forecasts will grow at 5.6% this year against 1.2% in developed countries. But Africa’s terrible infrastructure, including electricity, bridges, roads and wastewater treatment, is costing African sat least 2 percentage points of growth. Some of the new bond proceeds are likely to go on infrastructure, which needs investments of up to $93 billion a year.
The article cites research from JP Morgan Chase that average yields on African debt fell 88 basis points in the past 12 months, to 4.35%. “Nigeria, Gabon, Ghana, Ivory Coast, Namibia, the Congo, Senegal, and the Seychelles have all seen their borrowing costs fall this year.”
“It’s a hugely exciting story,” Jim O’Neill, the chairman of Goldman Sachs Asset Management who plans to retire this year, said in an April 23 interview with Bloomberg Television in London, writes Bloomberg reporter Chris Kay: “The only thing one has to be a little bit careful of are many of those markets are still very undeveloped and suddenly there’s a lot of people around the world regarding Africa to be sort of fashionable and trendy.”
Farzad wonders how easy it will be to “service so much easy-money debt when the credit cycle turns, or if commodities and political stability decline. At least for now, though, you get the impression that sub-Saharan Africa has turned a corner in global capital markets.” And journalist Chris Kay quotes Charles Robertson, global chief economist at Renaissance Capital: “For governments, great, don’t look a gift horse in the mouth. I still don’t believe investors are getting risk-adjusted returns in the dollar-bond space.”
According to Kay, debt-forgiveness programmes have helped 45 African nations cut debt to about 42% of gross domestic product this year from an average 120% in 2000, according to data compiled by Bloomberg and IMF estimates. South Africa’s Finance Minister Pravin Gordhan says debt will peak at 40% of GDP in 2016, compared with more than 100% for the U.S. and an average 93% in the eurozone.
Another reason why Africa offers lower risk is that taxpayers have no expectations of massive social and other spending in nearly all countries. Meanwhile global appetites are shown by the $20 trillion reportedly invested in debt at less than 1% yield.
Some potential issues
Nigeria planning to offer $1bn in Eurobonds and a $500m Diaspora bond, according to Minister of State for Finance Yerima Ngama. It was recently included in JP Morgan and Barclays local bond indices. Yields on the existing $500m Eurobond, due 2021, were down to 4.05% by 3 May, from a peak of 7.30% in October 2011.
Kenya really boosted investor confidence in Africa with its peaceful outcome after elections on 4 March and the Finance Minister Robinson Githae said on 11 March they could be in line to issue up to $1bn by September.
Ghana fuelled by an oil boom, has seen its debt yields on the 10-year bonds down 3.43 percentage points to 4.82% since their issue in October 2007, said Bloomberg.
Zambia successfully raised $750m last year at 5.625% and is thinking to return for another $1bn. Yields were up 20 basis points to 5.66% by 3 May.
Tanzania has asked Citigroup to help it get a credit rating before issuing a maiden Eurobond of at least $500m. Finance Minister William Mgimwa said a total of $2.5bn was bid for a private offering of $600m of Government debt in March. According to this story on Reuters that bond’s pricing and structure at the time had shocked markets and appeared to benefit investors: “The cheaply priced US$600m seven-year private placement was described as a “disaster” by one banker. And certainly the immediate secondary market performance looked terrible. The bonds jumped 2.75 points on their first day of trading.. That works out at a cost to the government of US$4m a year in coupon payments, assuming that the bonds could have priced at the tighter level.”
Angola did a private sale of $1bn in debt in 2012 and will go for $2 billion this year, according to Andrey Kostin Chairman of VTB Bank OJSC, who helped arrange the first issuance, last October.
Mozambique and Uganda may also issue foreign currency bonds of $500m each, according to Moody’s last October.
Gabon’s $1bn of dollar bonds are down 4.78 percentage points to 3.13% since they were issued in December 2007.
November 29th, 2012 by Tom Minney
New giants are arising in African investments – the domestic pension funds. In Nigeria the National Pensions Commission (PenCom) estimated registered pensions to be worth US$14bn in June 2011, with asset values up by 8% in three months; Namibia’s Government Institutions Pension Fund alone is worth some $6bn; South Africa’s pension funds grew at a compound annual growth rate of 14.3% in US dollar terms over 10 years to December 2010, including over 28% in 2010 and Tanzania’s pension industry was audited at $2.1bn for 2010, and growing by 25% a year.
The number of pensioners is set to soar, according to United Nations figures, as the number of people over 60 years in Africa will rise from 55m in 2010 to 213m by 2050, compared to 236m Europeans over 60 years old by 2050. Current pension funds cover only 5%-10% of Africans ranging from 3% in Niger but it used to be 80% in North African countries such as Egypt, Libya and Tunisia. Pensions are not available at all in some countries.
Regulatory reforms are driving the growth of African pensions. Recent reformers include Cote d’Ivoire, Gabon, Kenya, Nigeria, Senegal and Uganda. Ghana created a National Pensions Authority with a 2010 act. Reform in Kenya, including investment guidelines and a new regulator, resulted in strong growth and good investment returns. Tanzania passed the Social Security Regulatory Act in 2008. The rising pension industry is likely to boost fund management and equity industries, exits for private equity and even to fill some of the $45bn annual funding gap for infrastructure. For instance, In January 2012, Tanzania’s National Social Security Fund signed an agreement to finance 60% of the $137m cost of building Kigamboni Bridge. South Africa’s $130bn Government Employees Pension Fund is a major investor in the Pan-African Infrastructure Development Fund which raised $625m in 2007 and is targeting $1bn on its second offering.
For more details on Africa’s pension industry, please check my article published in The Africa Report magazine and website, here is the link www.theafricareport.com and for brief profiles of 6 giant African funds, check here.
December 6th, 2010 by Tom Minney
According to an interview on America.gov, the firm NYSE Euronext Inc. (www.euronext.com) — the home of the New York Stock Exchange and other exchanges — has seen a threefold increase in the trading of African stocks on its exchanges over the past 5 years and twice as many exchange-traded funds (ETFs) focused on Africa in the past 12 to 18 months.
Altogether, these increases stand as clear evidence of a “strong and growing focus” on doing business in Africa, said Stefan Jekel, managing director for Europe, Middle East and Africa at NYSE Euronext, last month in the interview: “The measure of trading in African firms on our platforms has basically tripled in the last 5 years..So we now have three times the liquidity in African stocks today on our platform compared to 5 years ago.”
There are 16 African stocks listed and traded on NYSE Euronext from 6 African countries: Cameroon (1), Cote d’Ivoire (1), Gabon (1), Morocco (3), Senegal (3) and South Africa (7). The total market capitalization of those listed African companies is $90 billion.
For a fund that give investors a cross-section of African companies, Jekel suggested the many Africa-focused ETFs. “We have seen the number of exchange-traded funds that are focused on Africa double in the last 12 to 18 months. There are funds that cover South Africa, Africa, Africa’s top 40 investments, and those are all available on our platforms here in Europe and the U.S. … all with different specializations, differentiations. … So investors find a variety of solutions and opportunities to participate in the growth that can be found across Africa.”
NYSE Euronext is “very closely monitoring” the African investment climate, Jekel said. “I do not mean that in a passive way. We are very involved in initiatives in highlighting investment in Africa.”
One such initiative, he said, is its annual Ai Index Series Summit held in conjunction with Africa-investor.com (Ai www.africa-investor.com). The 2 companies recently hosted their third annual summit, which featured Robert Rubin, former U.S. treasury secretary and a member of the Africa Progress Panel, and Tony Blair, the former British prime minister, who addressed the summit via a video message.
On African stock exchanges, Jekel said, NYSE Euronext enjoys its closest ties with its client-partner exchanges in Casablanca, Tunis and Gabon, but has close ties with exchanges in South Africa, Egypt and others. There are some 29 functioning stock exchanges across the continent, with Egypt, Nigeria and South Africa accounting for 75% of Africa’s listings.
Jekel said: “We are a technology partner to the Casablanca Stock Market and to the … Bourse Régionale des Valeurs Mobilières d’Africque Centrale, or BVMAC, in Gabon and the Tunis Stock Market. By providing technology to these partners, these stock exchanges are using the same engine that NYSE/Euronext use.” He added that they share much of the insight and institutional knowledge as well.
Jekel said he soon plans to travel to South Africa for meetings with members of that country’s exchange to, as he put it, “grow our list of African issuers” and continue building momentum in the Africa investment area.
NYSE Euronext offers training for sister exchanges in Africa and worldwide “mini-internships,” he said, where visitors from other exchanges can “job-shadow” NYSE Euronext personnel.
Role of stock markets
Jekel pointed out the critical role of stock markets worldwide: “No matter where you are, developed or emerging markets, stock exchanges are where investors meet ideas — where companies come to raise capital to finance their business ideas, to finance their growth, and where investors come to participate in these success stories.”
Stock markets, he said, are also an important vehicle for bringing direct foreign investment into a country and serve as a vehicle that “allows investors to participate in the various growth opportunities that exist in emerging market nations and Africa in particular.”
Jekel stressed 2 key pillars of any functioning stock market: reliability and transparency. “I think those are some of the core principles and pillars of a stock exchange operation, and we see those philosophies being naturally adopted in Africa, so that is very comforting.”
Additionally, he said, “We see business and democracy going forward hand-in-hand in positive momentum” across Africa.
Jekel said industry experts who cover Africa on a daily basis all agree that there is a “strong and growing focus on Africa and that it will only grow from here. We see that due to the entrepreneurial spirit, the success stories that come out of Africa and the growing liquidity in its stock markets. We believe those are highly encouraging indicators of development and what is to come.” Entrepreneurs “are key everywhere, be it in the U.S. or Africa. They are the job engines. That is typically where job creation and wealth is coming from and starting.”
Looking to the future, Jekel said, “I think there is consensus among those who are following Africa that right now the BRIC countries [Brazil, Russia, India, China] have a very large role to play in world markets, but several industry insiders are pointing to Africa as a region and continent to pay close attention to over the next 10 to 20 years.”