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African investors eye niche markets

Picture: Juda Ngwenya/Reuters

Picture: Juda Ngwenya/Reuters

Published May 5, 2017


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.

Read also:  #WEFAfrica17: Leadership bankruptcy is Africa's problem

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.”


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