Business | Investment
Investors begin to target Africa's frontier markets
Investors looking to tap African economic growth are increasingly looking beyond the continent's established markets South Africa, Nigeria and Kenya to a new generation of economies such as Ghana, Zambia and Tanzania.
- Reuters
- Published: 00:08 June 5, 2008
London: Investors looking to tap African economic growth are increasingly looking beyond the continent's established markets South Africa, Nigeria and Kenya to a new generation of economies such as Ghana, Zambia and Tanzania.
According to the Bank of America, foreign direct investment (FDI) to Africa doubled between 2000 and 2006 to $315 billion.
While African trouble-spots from Somalia to Sudan remain out of bounds to all but the hardiest investor, the arguably less newsworthy - and therefore often more stable - smaller countries are seen turning a corner and attracting growing interest despite relatively illiquid and immature markets.
"You have these second-tier economies coming into their own," said Razia Khan, chief Africa econ-omist at Standard Chartered in London.
Fundamentals
"There are a number of economies that have good fundamentals including Ghana, Tanzania, Zambia and Uganda."
With economic growth of six to seven per cent seen largely immune to a Western downturn - and increasingly perceived as broad-based beyond the immediate impact of soaring commodity prices - there is cross-asset interest from bonds to equities to direct investment in infrastructure.
Most of the countries have been free of civil wars since independence - although Uganda has yet to properly resolve its conflict with Lord's Resistance Army rebels.
Some saw coups and revolutions in previous dec-ades, but are now seen as sometimes flawed but stable democracies. Most received debt relief from G8 and other creditors since 2000, freeing cash from loan repayments for infrastructure development.
In dollar terms, Ghana's stock market has delivered some 40 per cent returns so far this year fuelled by an appreciating currency and the soaring value of Ghana and Johannesburg-listed miner AngloGold Ashanti - as well as upcoming oil production.
Copper-rich Zambia has seen its stock market rise some 25 per cent, again outperforming the more established sub-Saharan frontier equity markets in Nigeria and Kenya which have moved sideways or lower so far this year.
Showing the way
"It is the smaller econ-omies that are showing growth," said Ayo Salami, chief investment officer of the $30 million Duet Victoire Africa Index fund, which tracks African equity markets outside South Africa.
Standard Bank's head of emerging markets, Alia Yousuf, says she would ideally like to put most of her new sub-Saharan corporate debt fund in these second-tier markets rather than more overcrowded Nigeria or Kenya. Still fundraising, the fund aims to reach some $300 million.
"My top picks would be Ghana and Zambia," she said.
"There is a lot of interest in foreign investment there. The problem is the depth of the market. If you can find a corporate there that wants to expand then it makes sense but otherwise it can be difficult to find someone to lend money to."
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