Cape Town - Investors targeting Africa are broadening
their horizons in their search for yield as sluggish growth and policy
uncertainty in Nigeria and South Africa, the continent’s biggest
economies, weigh on returns.
Ivory Coast, Senegal, Ghana, Rwanda and Ethiopia are
among countries featuring on the radar screens of investors attending the World
Economic Forum’s annual gathering of the continent’s business and political
leaders being held in Durban on South Africa’s east coast.
All five economies should grow at more than the double
the sub-Saharan region’s average forecast rate of 2.6 percent this year, the
International Monetary Fund said last month. It expects both Nigeria and South
Africa to expand 0.8 percent.
“There is a more nuanced story in Africa,” Razia Khan,
Standard Chartered’s head of Africa macro research, said in an interview at the
forum. “There are pockets of strength and turnaround. Local factors matter
much more than they did in the past.”
Senegal and Ghana are set to benefit from recent oil discoveries.
Both their governments, along with those of Rwanda, Ivory Coast and Ethiopia,
have also implemented policy changes to attract investment and made it easier
for businesses to operate.
Africa attracted $94.1 billion of foreign direct
investment last year, up from $71.3 billion the year before, accounting firm EY
said in its 2017 Africa Attractiveness report, released on Wednesday. South
Africa, Egypt, Morocco, Kenya and Nigeria accounted for 58 percent of the
foreign direct investment projects.
Capital inflows
Fewer than 10 of Africa’s 54 nations probably have
sufficiently developed and big-enough economies with the potential to attract
significant capital flows and transactions, said Martin Kingston, the chief
executive officer of N.M. Rothschild & Sons in South Africa.
“We all recognise that we need to be very selective about
the markets we focus on and the size of those markets,” he said. “We have seen
pockets of real opportunity but also seen substantial concerns about the
short-term direction and the ability for policy makers to give effect to the
policies that they’ve articulated.”
South Africa’s investment appeal has been dented
by an intensifying battle for control of the ruling African National
Congress and President Jacob Zuma’s March 31 decision to fire Pravin Gordhan as
his finance minister -- a move that prompted S&P Global Ratings and Fitch
Ratings to downgrade the nation’s credit rating to junk.
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Nazmeera Moola, co-head of fixed income at Cape
Town-based Investec Asset Management, sees South Africa’s economy growing 1
percent or less this year and doesn’t anticipate a significant improvement
under the current political leadership. The ANC is due to hold internal
elections at a December 16-20 conference in Johannesburg.
‘Bare minimum’
“Business is going to be doing the bare minimum in terms
of investment until there is clarity in terms of the political outlook,” Moola
said in an interview in Durban. “Given the improvement we’ve seen in commodity
prices, given the improvement we’ve seen in exports, we really should see
investment growing and I fear that’s not going to happen.”
While Nigeria, which has Africa’s biggest population and
vies with Angola as the continent’s largest oil producer, was an investor
darling when crude prices were high, it fell out of favour as commodity prices
slumped and the economy contracted last year. The nation’s appeal has been
further eroded by the central bank’s restriction of access to foreign exchange
and its intervention in determining the exchange rate.
“There is a fairly long road ahead for Nigeria to reform
its institutions, get itself back on its feet, broaden the economy to the
extent that it’s no longer so reliant on oil,” said Chris Newson,
Investec’s director of private markets. “There are aspects that are looking a
bit more encouraging but I wouldn’t be unrealistic. It’s going to take a long
time for this to really start moving.”
While investors are seeking opportunities in Nigeria,
Kenya and especially Ethiopia, French West Africa is a “region of interest,”
particularly Ivory Coast and Senegal, Gary Senior, a corporate partner at Baker
& McKenzie’s London office, said in Durban. It was the top law firm for
developing market M&A last year in terms of deal count, according to data
compiled by Bloomberg.
To realize their full investment and growth potential,
African economies need a sustained period of structural transformation,
according to Khan.
“What you really need is a period of several decades
where 6 to 7 percent growth can be sustained,” she said. “We are not seeing
that anywhere in the region yet.”