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Changing perceptions mean $1.3 bn allocated to Africa

Tom Minney — Wed, 21 Jul 2010 22:54:27 +0000

Africa regional funds attracted $484 million inflows in the first half of 2010, says EPFR Global (www.emergingportfolio.com), and total investment fund allocation to Africa was a record $1.39 billion, according to a report in the Financial Times (www.ft.com). Africa regional funds have enjoyed 43 consecutive weeks of inflows totalling $579m since September 2009, despite the difficult world environment.
The article quotes Cameron Brandt, global markets analyst at EPFR Global: “In terms of sustained interest in Africa, this marks a real turning point.” The new element seems to be global perception.
Koffi Vovor of Kusuntu – Le Club, is quoted as saying: “The South African World Cup has been a major window of opportunity to shed light on Africa and rediscover it. People have started to realise they are perceiving the continent with a 20- to 30-year-old lens.” Kusuntu is an association of diaspora executives that promotes change and investment through private equity in Africa.
Chris Derksen, head of frontier markets at Investec Asset Management, agrees: “Nothing has changed on the continent itself. It’s been the right time to start investing in Africa for 10 years or so.”
The article says that investors are re-evaluating emerging markets, since developed markets themselves started looking risky in the global financial crisis It quotes Sonal Pandit, manager of the JPM Africa Equity Fund at JPMorgan Asset Management: “In the last few years, emerging markets have become more mainstream generally. As they get better known, investors have tried to look at who the next few candidates would be. The African continent still offers a lot of opportunities.”
Africa’s GDP has grown 4.9% a year since 2000, after 20 years of economic stagnation. Collective GDP in 2008 was $1,600 bn – equivalent to that of Russia or Brazil – and combined consumer spending totalled $860bn. Urbanization is nearly as high as China, with 52 cities of more than 1m people. By 2050 it will be home to one-third of the world’s under-25s. It has more middle-class families than India and they are under-penetrated in key areas including telecommunications, consumer goods and financial services.
China is a key growth driver, and trade with Africa has climbed from $10bn in 2000 to $106.8bn in 2008. It is not just exploiting resources, but also investing in infrastructure and the future. According to Ms Pandit, the relationship is symbiotic: “For example, because China wants access to oil and gas exploration in Nigeria, it has been prepared to put down $23bn for 3 oil refineries.”
However, governments need to improve and people to demand more from them. So do the investment structures – capital markets are shallow, many stocks are illiquid, information is scarce and the continent is very diverse. Investec’s Derksen says you need deep local knowledge at the micro level. Or you could invest in companies with a high exposure to Africa but listed abroad. Private equity is another option, but deal flow is not yet strong enough and government incentives are needed to speed the project pipeline.
However change is coming in the next 5 years: capital markets are expanding, diaspora executives returning to Africa for work, and intra-Africa trade growing. The FT cites Derksen: “African capital markets will become much easier to access and the number of investment managers looking at Africa will expand pretty dramatically.”

IMF revises growth forecasts upwards, AfDB forecasts recovery but warns of risk

Tom Minney — Sun, 11 Jul 2010 06:47:55 +0000

The International Monetary Fund (IMF) has revised upwards its economic growth projections for sub-Saharan Africa and the world economy, compared to its April predictions. The revised World Economic Outlook forecasts growth of 5.0% for sub-Saharan Africa in 2009 and 5.9% for 2010, the former up 0.3% on its April prediction, the latter unchanged. World economic growth is now forecast at 4.6% (up 0.4% on the April forecast) for 2010 and 4.3% next year (unchanged).
The new figures were released on 8 July, but based on data collected until 21 June, before markets crashed on fears of a “double dip” recession. The commentary on the IMF website warns: “Nevertheless, recent turbulence in financial markets—reflecting a drop in confidence about fiscal sustainability, policy responses, and future growth prospects—has cast a cloud over the outlook. Crucially, fiscal sustainability issues in advanced economies came to the fore during May, fuelled by initial concerns over fiscal positions and competitiveness in Greece and other vulnerable euro area economies. At the same time, downside risks have risen sharply.. In this context, the new forecasts hinge on implementation of policies to rebuild confidence and stability, particularly in the euro area.”
Growth forecasts for the Middle East and North Africa are virtually unchanged at 4.5% (2010) and 4.9% (2011). Africa still lags behind other key economies, such as China (forecasts of 10.6% and 9.5%) and India (9.4% and 8.4%) but is close to Brazil (7.1% and 4.2%) and ahead of Russia (4.3% and 4.1%).
Projections for South Africa are also being revised up, according to a report in Business Day newspaper (www.businessday.co.za). On 8 July the IMF said SA’s economic growth was likely to reach 3.2% this year, up from an estimate of 2.6% published in April, according to Alfredo Cuevas, the IMF’s senior resident representative in SA. “The recovery in SA has been stronger than expected, and we don’t see ourselves making major revisions to the forecast at this point,” he told the newspaper.
The paper cites Finance Minister Pravin Gordhan as stating on 8 July that growth in the first quarter was 4.6%, up from 3.2% in the fourth quarter of last year. “We have seen a gradual improvement in economic conditions. The pace of growth probably moderated somewhat in the second quarter.” He said that SA was on target to beat the forecast of its Treasury Department, which had forecast 2.3% forecast, after contracting 1.8% in 2009.
Mr Cuevas said that although the European slowdown “weighed” on SA, the effect was less than the good news seen in the past few months, including the effects of the World Cup, which should contribute half a percentage point to overall growth: “It has been a much bigger success than people abroad have expected … SA has been seen in a very positive light as a result of the smooth running of the World Cup.”
The IMF raised its US growth forecasts a little to 3.3% and 2.9% for 2011, but warned unemployment would remain above 9% for both years. It warned that unemployment, a large backlog of home foreclosures and high levels of negative home equity, posed risks of a “double dip” in the US housing market.
According to the IMF statement: “The world economy expanded at an annualized rate of over 5% during the first quarter of 2010. This was better than expected in the April 2010 WEO, mostly due to robust growth in Asia. More broadly, there were encouraging signs of growth in private demand. Global indicators of real economic activity were strong through April and stabilized at a high level in May. Industrial production and trade posted double-digit growth, consumer confidence continued to improve, and employment growth resumed in advanced economies”.
The laggard remains the euro area where overall growth is forecast at 1.0% in 2010 (unchanged) and 1.3% in 2011 (revised down 0.2 percentage points). UK growth is revised downwards to 1.2% (down 0.1 percentage points) and 2.1% (down 0.4 percentage points). Japan is set to grow by 2.4% (up 0.5 percentage points) and then 1.8% 9down 0.2 percentage points).
African Development Bank says the continent is making a “spectacular” recovery from the global recession. Chief economist Mthuli Ncube was reported on 6 July as predicting growth for Africa of 4.5% this year and over 5% next year. It is then expected to return to the average of about 6% percent it enjoyed between 2006 and 2008. Growth was just 2.5% in 2009 (the IMF had 2.2% for sub-Saharan Africa for 2009).
Ncube is reported to link Africa’s recovery to trade with China and decades of market reform. He is reported on Reuters as warning the recovery could be threatened if Europe — to which many African economies are closely connected — fails to bounce back and a slowdown in Europe could see the AfDB trim Africa’s 2010 growth forecast by between 0.5 and 0.8 percentage points. “We think there’s a 50-50 chance that a major slowdown, a double-dip recession (in Europe), will become a reality.” Other threats include the possibility of political or social tension and problems associated with poor infrastructure.
Reduced trade would have the main impact from Europe on Africa, Ncube said, although tightening of credit lines by European banks was also likely to hit growth — as it did in late 2008 when the financial crisis struck. He also pointed to a likely reduction in aid from European governments such as Germany, Britain, Denmark and the Netherlands, where political opposition to domestic austerity measures is bound to grow. “We think that there will be about a 10% reduction in aid”.

Africa’s mid-term prospects – growth and climate change

Tom Minney — Sat, 05 Jun 2010 20:56:38 +0000

“After decades of stagnation, Africa’s economies experienced a marked acceleration in growth during the past ten years. The magnitude of the continent’s development story is startling in its specifics and the opportunity it presents”. This is the start of a detailed package on the website of McKinsey Quarterly (www.mckinseyquarterly.com) outlining growth prospects sector by sector.
IN particular, the article “Fulfilling the promise of sub-Saharan Africa
argues “sub-Saharan Africa offers a better platform for profitable new investments than ever”, The author is Ngozi Okonjo-Iweala, a managing director at the World Bank and former Fiance and Foreign Minister of Nigeria. Since future growth will be in emerging markets and south-south expansion, she argues: “..there is an emerging side of the African story that speaks of successes often achieved below the radar screen. The region aspires to move past the image of extreme poverty and conflict with which it has long been associated and to show that it is not only open for business but also actually in business. Before the crisis, sub-Saharan Africa had been growing fast, with an average annual growth rate of 6 % between 2002 and 2008. The region, which is weathering the global downturn better than most other parts of the world, is projected to grow by 3.8 and 4.5% in 2010 and 2011, respectively—faster than Latin America, Europe, and Central Asia.”
She cites as causes of the success: better political and economic stability, more commitment to private sector growth and more investment in education and infrastructure. Reform continues despite difficult times and Rwanda was top reformer worldwide in the World Bank’s Doing Business 2010 report (http://www.doingbusiness.org). Botswana, Cape Verde, Ghana, Kenya, Mauritius, Mozambique, Namibia, Nigeria, Seychelles, South Africa, Tanzania, Uganda, and Zambia are all listed as “frontier emerging economies with relatively developed financial markets”.
Education (average years of schooling) has climbed more than fivefold since 1960 and is catching up fast with the rest of the world. Infrastructure spending amounts to $45 billion a year, absorbing more than 5% of total GDP.
Natural resources will continue to be a source of growth, including renewable energy such as solar, hydro and biofuels. Appropriate investments in agricultural skills and infrastructure —for example, irrigation — could prompt a green revolution in sub-Saharan Africa. Local food demand is to reach $100 billion by 2015, double its level in 2000. “Global markets for nontraditional exports such as horticulture are expanding rapidly. Sub-Saharan Africa has many success stories, such as the production of cassava chips in Ghana, organic coffee in Tanzania, and cut flowers in Kenya, as well as aquaculture in Malawi”
The advances are also notable in IT, she says: become the fastest-growing region in the global cellular market, going from fewer than 2 million mobile phones in 1998 to more than 400 million today. More than 65% of the population now lives within reach of a wireless voice network, up from less than 1% ten years ago. Mobile phones have become the single-largest platform that can be used to deliver government services to the poor. Yet while great progress has been made in improving access to the information and communications infrastructure in many countries, much less effort has been made to exploit its potential to transform other sectors.”
However, the author also cautions “climate change makes the challenge of sustainable growth more complex”, particularly as rainfed agriculture makes up 30% of GDP and 70% of employment. She says Africa could turn the climate change problem into an opportunity, as it “has great potential for sustainable, intensive farming through investments in new technologies and the conservation of vegetation, soil, and water. These approaches provide a “triple dividend” supporting adaptation to climate variability and change, mitigating carbon emissions, and promoting food security. The financial resources generated through mitigation could be very substantial. In sub-Saharan Africa, the economic potential from agricultural soil carbon sequestration is estimated to be 150 million tons of greenhouse gases a year.”
The author is even optimistic that the fast-increasing population, which is also moving into towns, will offer resources for labour intensive industries in future. Reading between the lines of the article are the dangers if Africa does not get it right and manage to adapt to climate change, with resulting fall in agricultural productivity and growing city slums.
Congrats to McKinsey for once again organizing helpful and thoughtful coverage.

“Africa needs more connections”

Tom Minney — Wed, 28 Apr 2010 12:44:10 +0000

Africa got a record $88 billion of foreign direct investment (FDI) in 2008, but it was a tiny share of total global (FDI) which was down to $1.7 trillion, according to the World Investment Report 2009, published by United Nations Conference on Trade and Development (www.unctad.org). According to a report in Tanzania’s The Citizen newspaper, poor infrastructure harms Africa’s competitiveness as an investment destination.
It says the World Association of Investment Promotion Agencies (www.waipa.org) is calling on Africa to find a lasting solution to the problem. The report cites Waipa Vice-President Emmanuel ole Naiko as telling a First Africa Regional Investment Conference in Cameroon that poorly interconnected air routes within the continent and barriers to cross-border trade were discouraging investors. Mr ole Naiko is also Tanzania Investment Centre executive director.
He reportedly said roads, railways and ports target Europe and USA and are poorly connected: “Developing countries must break down the barriers at their own borders.”
He urged African economic groupings to stimulate business. “We must remove the notion that exporting is only when you sell commodities to the US and Europe and not when you sell them to African countries,” he said.
The report forecasts that last year’s global financial crisis will cut global FDI to $1.2 trillion this year but it will start picking up next year. “Inflows as a share of Africa’s gross fixed capital formation grew to 29% in 2008, from 27% in 2007. In contrast, divestments by some African firms abroad reduced FDI outflows from the region. A number of policy measures adopted by several African countries continued to make the business environment more conducive to FDI – both inward and outward. However, the sharp decline in commodity prices and the slowdown in global economic growth in the second half of 2008 may signal a possible reversal of the trend towards rising FDI in 2009, breaking the region’s six years of consecutive growth in inflows as TNCs cancel or postpone new projects.”

Africa investor’s Analysts’ and Fund Managers Forum

Tom Minney — Thu, 08 Apr 2010 22:14:31 +0000

Top of this month’s conference agenda is the Africa investor’s Analysts’ and Fund Managers Forum & Financial Reporting Awards, organized in association with NYSE Euronext and Bloomberg. This prestigious event will be next Monday and Tuesday, 12-13 April, at Bloomberg’s London headquarters, and your editor will be day chairing the whole of the first day. Sorry, this will mean that updates and news disseminated via this blog will be late.
Ai (www.africa-investor.com) is a leading African provider of benchmarks and indices and their opening speaker is editor Hubert Danso. Bloomberg (www.bloomberg.com) is a top rated supplier of market data, news and other information services and will be represented for the opening by Ian Yeulett, Chief Executive, Europe and Africa. It is part of Ai’s series of road shows profiling African capital markets to the international investment community.
It offers high-level networking to analysts, fund managers, pension funds, sovereign wealth funds, investor relations officers and the financial media to meet CEOs from Africa’s leading listed companies and stock exchanges.
The theme is “capital introduction” and the organizers are also putting together one-on-one meetings for institutions currently raising capital and seeking investors.
The event also includes the annual Africa investor Analysts’ & Fund Managers Forum and the Financial Reporting Awards as well as a full day (13 April) Investor Relations Training Workshop for IR professionals from African listed companies, CEOs, Finance Directors, Compliance Professionals, IR and communication consultants and other advisory professionals from listed companies.

Monday, 12 May
Session 1(10:10am): The Value Proposition – overview of African capital markets (equity and bonds) including their size, how do capital flows compare with other regions, direct vs portfolio investment, how do its exchanges compare to global leaders, and why did it lag the recovery of other emerging markets after the crisis? Chair: Anton Hobbs (Africa Sales, Bloomberg), panel: Matthew Pearson (Head of African Equity Products, Standard Bank), David Cowan (Economist Africa, CitiGroup), Luca del Conte (Executive Director, MediCapital Bank) and Veronica Kalema (Director, Fitch).

Session 2 (10:50am): Hidden value? Valuation and Accounting in African Companies including leading investment researchers, credit rating analysts and financial journalists reviewing some special factors behind the valuation of companies and sectors in our resource-rich but under-developed continent. Chair: Joseph Wambia (CEO, Wambia Capital LLC), Neil Shah (Research, Edison Investment Research), Daniel Broby (CIO, Silk Invest), Gregory Kronsten (Chief Economist, First City Monument Bank UK), Maciek Szymanski (Investment Strategist, African Alliance Securities)

Session 3 (12:00 noon): Capital Introduction – Trends and Prospects. Leading pension funds and fund managers will analyse global capital raising market for Africa-focused listed, bond, Shariah, hedge and private equity funds, including the views of international pension funds, new directions for sovereign wealth funds and family funds and sector-focused funds. Chair: Rafael Stone (Foster Pepper LLC), Christopher Grune (State Street Global Advisors), Martin Poulsen (Chief Private Equity Officer, African Development Bank), Craig Mercer (Senior Investment Consultant, Towers Watson), Hela Dammak (MD, Global Markets Societe Generale) anf Zain Latif (Partner, TLG Capital).

Session 4 (12:40): Global emerging markets investors and African pension funds and CEOs will debate: disclosure compared with other global markets; can companies identify and talk to their owners, do African companies take investor needs seriously and what could they do to reduce their cost of capital? Chair: Sunil Benimadhu (CEO, Mauritius Stock Exchange), Tim Goodman (Hermes Fund Managers), Nicolas Clavel (CIO, Scipion), Richard Veringa (Executive Director/COO, Sigma Pension Funds), Stephen Swanson (Senior Legal Counsel, Abu Dhabi Investment Company).

Session 5 (14:30): CEO Roundtable: Success stories and strategies from leading African capital markets personalities, including investment strategies and other experiences. Chair: Ekow Afedzie (CEO, Ghana Stock Exchange), Arnold Ekpe (CEO EcoBank), Geoffrey White (CEO, Lonrho), Euan Worthington (Chairman, African Eagle Resources), Dr James Mwangi (CEO, Equity Bank) and Ismail Douiri (Directeur, Attijariwaffa Bank)

Session 6 (15:10): Fund Managers’ Analysis of Market Trends and Forecasts for 2010. Sharing and analysing research, profiling countries, sectors, funds and companies they believe will do well, with predictions and forecasts. Chair: Tom Minney (Editor, African Capital Markets News), Andrew Lister (Senior Investment Manager, Advance Emerging Capital), Ian Morley (CEO, Corazon Capital). Marc Sullivan (Portfolio Manager, Cadiz), Jamie Allsopp (Fund Manager, Insparo Asset Management), Renaissance Capital.

The Africa investor Financial Reporting Awards: The winners will be announced at the end of the forum followed by a cocktail reception in recognition of the award winners. Africa investor will recognise the best listed companies and media houses as well as the leading financial analysts with an outlook on Africa.

Tue 13 May
Industrial Relations workshop sponsored by supported by the IR Global League (www.irgl.info).

For bookings for this and for the industrial relations workshop contact Africa investor click here.

Travels in Ethiopia

Tom Minney — Fri, 05 Mar 2010 05:44:57 +0000

Apologies for the lack of postings, currently travelling in Ethiopia, normal service should resume next week..

IMF sees faster recovery coming, 4.3% growth for Africa

Tom Minney — Thu, 28 Jan 2010 16:07:22 +0000

The International Monetary Fund (www.imf.org) is upgrading its African growth prospects for this year, compared to forecasts made in its October 2009 World Economic Outlook. It foresees 4.3% growth for 2010, and 5.3% for 2011 in Africa and adds that the world will bounce back from negative growth in 2009 to 3.9% growth in 2010. The African growth is 0.3% (2010) and 0.1% (2011) better than previously forecast and the world economy is also growing faster than previously forecast, still driven by policy measures.
According to an update to its World Economic Outlook, released on 26 January: “The recovery is proceeding at different speeds around the world, with emerging markets, led by Asia relatively vigorous, but advanced economies remaining sluggish and still dependent on government stimulus measures.”
Economies could even head back into recession, if anti-crisis measures are withdrawn too soon, says IMF Managing Director Dominique Strauss-Kahn. IMF Chief Economist Olivier Blanchard says: “For the moment, the recovery is very much based on policy decisions and policy actions. The question is when does private demand come and take over. Right now it’s ok, but a year down the line, it will be a big question.”
The Fund called for a careful unwinding of positions, differentiated for different economies: “There remains a pressing need to continue repairing the financial sector in advanced and hardest-hit emerging economies. In these cases, policies are still needed to tackle banks’ impaired assets and restructuring.” Unwinding the financial sector support gradually can be facilitated by incentives that make measures less attractive as conditions improve.
“Policymakers will also need to move boldly to reform the financial sector with the objectives of reducing the risks of future instability… At the same time, some emerging market countries will have to design policies to manage a surge of capital inflows.”.
The growth and forecast growth for Africa is far behind that for China (8.7% in 2009, 10.0% in 2010 and 9.7% in 2011) and India (5.6%, 7.7% and 7.8%).
“Stronger economic frameworks and swift policy responses have helped many emerging economies to cushion the impact of the unprecedented external shock and quickly re-attract capital flows. The rebound of commodity prices is helping support growth in commodity producers in all regions. The IMF’s baseline petroleum price projection is unchanged for 2010 and revised up by a small amount in 2011 (to $82 a barrel, from $79 a barrel in the October 2009 WEO). Other non-fuel commodity prices have also been marked up modestly.
Significant risks remain if policymakers get it wrong.

Forecast
2008 2009 2010 2011
World 3.0 -0.8 3.9 4.3
Africa 5.2 1.9 4.3 5.3
sub-Saharan Africa 5.6 1.6 4.3 5.5

IFC lists $100 mln Islamic financing instrument in Dubai and Bahrain

Tom Minney — Wed, 04 Nov 2009 15:57:36 +0000

This is not strictly an African story, but Islamic finance is a very important for much of Africa..

The International Finance Corporation (IFC – www.ifc.org), a member of the World Bank Group, on 4 November listed its first Islamic long-term financing instrument, a Sukuk. The IFC became the first non-Islamic financial organization to issue a Sukuk in the Gulf Cooperation Council for term funding.

The $100 million Hilal Sukuk was listed on NASDAQ Dubai (www.nasdaqdubai.com), an international exchange serving the Middle East, and on the Bahrain Stock Exchange (BSE – www.bahrainstock.com). The money will be used to fund health and education investments in the region. The Sukuk has a Moody’s Aaa rating. Duration is five years, starting from 3 November 2009. It pays a fixed return of 3.037% every six months (on 3 May and 3 November).

NASDAQ Dubai is the world’s largest exchange for Sukuk by listed value, with 21 listed Sukuk valued at $16.7 billion. The BSE lists 14 issues of Islamic Sukuk and conventional bonds with an approximate total value of $3.3 bln.

Sukuk, from the plural of the Arabic for a legal certificate or cheque, is a financial instrument which is equivalent to a bond but managed according to Shari’ah by not paying interest and meeting other moral and ethical criteria. Often it is linked to partial ownership of a project or asset and can reflect returns or rents on this. The issuer of a sukuk sells an investor group the certificate, who then rents it back to the issuer for a predetermined rental fee. The issuer also makes a contractual promise to buy back the bonds at a future date at par value (http://www.investopedia.com). According to Wikipedia (http://en.wikipedia.org/wiki/Sukuk), more than $700 billion of assets are managed according to Islamic investment principles.

Jeff Singer, Chief Executive of NASDAQ Dubai, says: “The launch of the IFC’s and the World Bank’s first Sukuk and its listing on NASDAQ Dubai are a significant step in the continuing integration of Islamic finance into the global financial system. We are delighted to support the Sukuk as its primary listing venue, providing a regulatory structure that promotes transparency for investors and visibility for the issuer.”

HE Dr. Omar Bin Sulaiman, Governor of the Dubai International Financial Centre (DIFC) and Vice Chairman of the UAE Central Bank, said: “As the first non-Islamic financial institution to issue a sukuk for term funding in the GCC, this truly is a ground-breaking transaction and clearly demonstrates the growing importance of the region within the global financial system.

“NASDAQ Dubai and DIFC remain instrumental in building the regulatory and legal infrastructure to develop a Islamic finance securities market and facilitate the creation of new financing opportunities for global issuers. This listing further enhances DIFC’s stature as a leading global hub for Islamic finance transactions.”

The securities of IFC’s Sukuk are the first to be held on NASDAQ Dubai’s central securities depositary, which reportedly provides securities holders with an efficient and streamlined service.

NASDAQ Dubai serves the region between Western Europe and East Asia, welcoming regional as well as global issuers that seek regional and international investment. It lists shares, derivatives, exchange-traded commodities, structured products, Sukuk (Islamic bonds) and conventional bonds. Majority shareholder is Borse Dubai (two-thirds) and NASDAQ OMX Group owns one third. Dubai Financial Services Authority (DFSA) is the regulator and the exchange is located in the Dubai International Financial Centre (DIFC). For more information, visit www.nasdaqdubai.com. Sukuk are also listed on the London Stock Exchange (www.londonstockexchange.com), Luxembourg (www.bourse.lu) and other stock exchanges. See also www.sukuksummit.com.

Introducing the blog

Tom Minney — Thu, 09 Jul 2009 16:40:03 +0000

This blog aims to provide news of developments in Africa’s capital markets, including the stock and securities exchanges and venture capital markets. I’ve been involved in managing a stock exchange and am a former journalist and hope that the result will give interesting and useful information.