Africa’s story is no longer that of a continent with great potential. Increasingly, the leaders and peoples of the continent, in collaboration with outsiders, are translating that potential into concrete achievements.
NEW FOCUS FOR INVESTMENTS
Traditionally, investment into Africa mostly involved extractive industries, as well as the infrastructure required to move mined resources to ports for export, Freemantle points out. This is changing as the continent’s manufacturing and services base begins to mature and expand, Freemantle notes. Some of the most compelling investment opportunities in Africa’s emerging and frontier economies are in consumer-facing industries, including consumer goods, financial services, telecommunications and pharmaceuticals.
Portfolio flows to Africa have also grown as the appetite for African debt and equity has lifted, in part in response to the low interest rate environment in the advanced world. Investment flows into the continent have also been supported by the improved macroeconomic management and political stability in some of Africa’s key markets.
From Nigeria to Kenya and Zimbabwe, stock market reforms are generating interest among foreign investors. “We have seen an increased interest in investing in Africa as a result of reforms,” says Duncan Smith, senior business development manager at Société Générale Securities Services in South Africa.
Nigeria has been “a huge success story,” Smith says, driven in part by Nigerian companies, like Seplat Petroleum Development, with dual listings on the Nigerian Stock Exchange and London Stock Exchange, and by Nigeria’s registration of foreign collective investment schemes and its five-year exemption of stock market transactions from value-added tax.
Nigeria now is developing a 10-year capital market master plan, which it plans to implement beginning this year.
Zimbabwe too has seen increased flows of FDI following the establishment of the Chengetedzai Depository, the country’s first central securities depository, in 2014. The dematerialization of securities and the settling of trades in US dollars reduce risk, making the market more attractive, Smith says.
African economies are also becoming increasingly integrated into the global capital markets for the first time. This has been a major development for three reasons, says Ashmore’s Dehn.
First, it helps countries to diversify their financing sources away from development assistance. For the first time, many African countries have issued international bonds to finance projects at home. In 2011, Nigeria sold its first eurobond, raising $500 million. In 2013, Rwanda sold its first international bond, raising $400 million to finance the construction of a hydropower plant and a hotel, and payment of some of state-owned RwandAir’s debt.
Integration into the global financial markets has brought more market discipline to government finances. Countries now are able—or forced—to manage public finances better and reduce fiscal deficits to acceptable levels. Many African nations, especially those endowed with natural resources, have set up sovereign wealth funds into which they pay excess revenues from commodities prices that exceed benchmarks. Nigeria and Angola are two countries that have established such funds.
Integration is paving the way for full market access for African corporates. Private-sector companies now are also able to raise funds from the global financial markets, with their respective countries’ debt instruments helping them price their own risks.
While sub-Saharan Africa has made great strides, the outlook still contains clouds. Some countries continue to be plagued by political instability and strife. And some have been hit hard by the plunge in the price of oil and other commodities. But that hit from commodities may encourage more economic diversification across the continent, to the benefit of all.