I have heard many reasons why Americans should be wary of investing in Africa’s stock markets, even though the continent’s dozen or so exchanges have outperformed their North American and European counterparts for years. Some of the reasons come from very bright, industry-acclaimed individuals to whose knowledge of U.S. markets I normally defer.
I’ve been told, for example, that investing in Africa’s stock markets is too “risky”; that those markets are “too far away from home”; that “there’s plenty to invest in at home in America”; that we don’t know “anything about the companies listed on those exchanges or the people involved in them,” so if the companies were in trouble there’s no way we would know about it; and “ifthose markets have been doing so well, then it may be time for a correction.”
It would have been more honorable of the stay-away advocates to admit to ignorance of African markets than to dismiss those markets with such unimaginative arguments.
Africa-averse sentiments affect private U.S. investment in general, often to the bemusement of the continent’s business elite and to the delight of America’s business rivals. Asked about investors who are currently active in Africa, Donald Kaberuka, president of the African Development Bank and a former finance minister of Rwanda, cites South Africans and East Indians, “who know Africa very well,” and the Chinese. “They read risks differently and they are investing actively all over the place. But I am convinced that other companies will be coming to Africa,” he says.
Though not without challenges, says Kaberuka. Africa is rich in natural resources, is largely at peace and soon will have one billion people. That pretty much describes India and China not so long ago, both scalding-hot markets today.
The bank Kaberuka heads has triple-A (the highest) credit ratings from four of the world’s leading rating agencies: Standard & Poor’s, Fitch Ratings, Japan Credit Rating Agency and Moody’s Investors Service. It manages more than $11 billion in liquidity and makes up to $2 billion in loans annually.
Kaberuka made his comment in Washington, D.C., in June, when global portfolio investors convened to discuss “untapped and diverse portfolio investment prospects in sub-Saharan Africa and explore strategies to bring portfolio investment to Africa.” Billed as historic, the gathering focused on opportunities for portfolio investment for global fund managers in the areas of listed and unlisted equities and debt. Naturally, it provided insights into the risk-reward dynamics in Africa.
Kaberuka co-chaired the discussions with John Simon, executive vice president of the U.S. Overseas Private Investment Corp.
That this subject warranted a by-invitation-only summit of pace-setting investment fund managers and representatives of ratings agencies suggests an under-the-radar interest in Africa that goes beyond import-export trade. The conveners were The Whitaker Group, a consultancy founded by Rosa Whitaker, an African-American former assistant U.S. Trade Representative for Africa and architect of the Africa Growth and Opportunity Act, the cornerstone of U.S. policy in Africa; the African Business Roundtable, made up of Africa’s leading business owners; the World Bank Private Sector Develop-ment Unit; and Kleiman International Consultants Inc., Washington-based analysts of emerging banking and securities markets.
Not only have most sub-Saharan stock exchanges turned in good performances in recent years, this group notes, but several African countries also have received sovereign credit ratings, with several at investment grade. It further notes that “good economic and financial sector progress resulted in overall growth of 5 percent for the region in both 2004 and 2005 as inflation dropped to a 30-year low, fueled by both oil and nonenergy commodities.”
Around the same time, the annual World Economic Forum on Africa, held in South Africa, launched the Invest-ment Climate Facility, a public-private partnership aimed at boosting investment in Africa while tackling barriers to doing business on the continent. Launched with more than $80 million of its targeted $550 million in funding, the facility received backing from a number of multinational companies and governments, including a $30 million grant from the International Finance Corp., the private sector arm of the World Bank. The fund will contribute expertise to the investment facility and will tackle “real and perceived obstacles” to investment over the next seven years. It is slated to dissolve in 2012.
Perhaps the stay-away advocates will catch on with the rest of the follow-the-pack crowd.
By Rosalind McLymont