Africa, Development & Aid, Economy & Trade, Headlines

AFRICA: ‘Tigers’ Can Live In Africa Too, Say Financial Analysts

LONDON, Mar 21 1996 (IPS) - Within the next few years sub-Saharan Africa could rank alongside Asia as a major destination for foreign institutional investment, claim fund managers who have bucked the trend and invested heavily in the region.

Michael Power, manager of the all-Africa, 30 million dollar Simba Fund launched in London last year, sees new investor interest in Africa — an estimated 500 million dollars worth of investment in the past five years — as “a sign of things to come”.

“Quite a few fund managers are excited about Africa,” he says, “and I’m one of them. Initially, Africa was a novelty. Today it is a known quantity. Tomorrow it will be regarded as just another investment opportunity, just as south-east Asia.”

Power’s optimism about Africa’s increasing attractiveness as an emerging market is obviously matched by other fund managers which are avidly seeking investment opportunities in the region.

They include the U.S.-based GT Management’s 75 million dollar All- Africa Fund, Foreign and Colonial’s Emerging Markets Fund — which has invested 10 percent of its 237 million dollar portfolio in the region — and the New York listed Morgan Stanley Africa Investment Fund which, with a portfolio worth 250 million dollars, is by far the largest Africa-specific fund.

One side effect of this interest is the speed with which stock markets are being established or consolidated in the region. There are now well over 20 bourses in Africa — many set up within the last four or five years — with a market capitalisation of 260 billion dollars, including the longer-established ones in Botswana, Cote d’Ivoire, Egypt, Kenya, Nigeria, South Africa and Zimbabwe.

The Kampala Stock Exchange is expected to begin trading before the end of the year. “There is no doubt that Africa is becoming very interesting indeed, and the growth of local stock exchanges can only help in this dramatic transformation,” says Neil Gregson, manager of Credit Suisse’s South Africa Fund.

But, is the talk of an ‘investment renaissance’ in Africa just hype by self-interested fund managers whose commitments leave them no option but to promote the region?

Rob Fisher, an analyst at Flemings’ Save & Prosper (S&P) give a qualified yes. The region does have potential but it is presently dormant. “I would adopt a wait-and-see attitude,” he says.

“Although it seems things are picking up in Africa, you never know, things may change — there are still risks. South Africa is definitely where the action is.”

A recent survey by London-based Fund Research found that almost 80 percent of new investment in the region is going to South Africa, reflected by the Johannesburg bourse’s market capitalisation of 250 billion dollars.

Cautious S&P, which launched a Southern Africa Fund two years ago, say they are not in a hurry to diversify in the rest of Africa. The fund is producing extremely good returns. Last year alone it was an above-average 58 percent.

However, Fisher’s evaluation of Africa’s prospects are not shared by many in the investment community. Markets are ruled by sentiments and many analysts are not as dismissive of the region as S&P.

Credit Suisse’s Gregson says interest in Africa will last. He says the only reason why their fund is South Africa-specific is because that market was undersubscribed. They have the whole of the region in their sights.

Though new investment is significantly skewed in South Africa’s favour, analysts welcome a distinct broadening of foreign institutional foreign investment. Aside from the bourses in South Africa, Zimbabwe, Swaziland and Botswana, the next best-performing stock exchanges are in Ghana, Cote d’Ivoire, Egypt, Kenya, Tanzania and Zambia.

Many reasons are given for the change, among them increasing democratisation, implementation of IMF and World Bank imposed economic ‘reform’ and the determination of political leaders to find alternative funds as Western aid dries up.

But the main reason remains Africa’s enormous potential as producer of mineral and agricultural products and the generational shift from a fiercely nationalist, isolationist political elite to a technocratic, business-oriented outward-looking community.

Power believes that industrialisation in the ‘tiger’ economies of Asia will lead to increasing demand for Africa’s agricultural and mineral products by the powerful Asian economies.

“Yes, I believe that the central reason for this interest in Africa is because Asia is becoming very interested in Africa’s resources,” he adds. “There will come a time when Africa’s resources will be one of the driving forces of the Asian economies.

“So, we are positioning ourselves. We have faith in Africa and we have entered early to capitalise on the opportunities which are obviously there. Of course, there are risks, but all investments carry risks. Investment in African stock exchanges is a way of tapping into growth in the ‘tiger’ economies.”

Since 1985 diamond consumption in Asia has grown six times, with the region accounting for five of the top seven diamond buying nations. Gold consumption has trebled in Asia, where eight of the top 10 markets for gold are located. Their demand for many primary commodities — including tea, cocoa, rice, tobacco, coal, cotton, timber, cement, chromium — is also increasing.

Says Sean Magee, director of corporate relations at London’s Commonwealth Development Corporation, which has nearly a billion dollars invested in over 15 countries in Africa: “Africa’s time has arrived. We knew this would happen and we had been investing there even when it was not fashionable.”

 
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