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Analysis
Slow return in Africa confidence

Slow return in Africa confidence

African public investors seeking innovation

by David Marsh

Fri 21 Oct 2016

Africa for years has been the swing player in the world economy, with investors veering regularly between enthusiasm and disdain – widely differing sentiments illustrated by the notorious fluctuations in past years' cover stories of The Economist magazine.

There are now signs, after a rollercoaster ride in which sub-Saharan economies’ GDP growth has fallen to just 2.5% this year (half the rate in 2013), that Africa may be past the worst. GDP per capita will also be down this year, according to the World Bank – a disastrous result for a continent beset by widespread poverty and inequality – but a gradual rebound is likely in the next few years.

A good place to take stock is Ghana, venue of OMFIF’s second African Public Investment Meeting on 18 October, bringing together public investment institutions from all parts of the continent. These institutions, or Global Public Investors, could gradually become more important players in a slowly emerging African capital market, according to the OMFIF Global Public Investor 2016, with $769bn under management at end-2015, most of which at present is invested in domestic economies.

The total is down from $879bn at end-2014, reflecting withdrawals to cope with commodity and oil price fluctuations. But there is evidence that managers of pensions savings and sovereign investments around Africa are trying to become more innovative in seeking destinations for their funds. 

Ghana’s investor appeal rose dramatically after oil was discovered in 2007, with growth soaring to 14% in 2011, before subsiding to a more staid 6% in the past few years. Growth is expected at 3.3% this year, restrained by tough fiscal and monetary measures under a $918m three-year loan facility from the International Monetary Fund.

Ghana’s vicissitudes mirror those of Africa as a whole. Despite the drawbacks of low oil and commodity prices, Millison Narh, deputy governor of the Bank of Ghana and co-host of the second African Public Investors Meeting, says investment interest in Ghana is increasing, partly because of lower returns and broader perceptions of risks in many other parts of the world. Unforgiving external economic conditions have acted as a spur for Africa to improve performance by increasing resilience and self-reliance, he says: ‘Africa’s growth and development largely depends on Africans.’

Click on the image below for a selection of Africa coverage from GPI 2016 and a chapter from The Convergence of Nations, published by OMFIF Press. For more information on GPI 2016, including how to purchase a copy, click here. To purchase a copy of The Convergence of Nations, click here.

Economist Covers For Commentary - Oct 2016

Investor perceptions have been heavily influenced by negative developments in the continent’s two largest economies, Nigeria and South Africa. Nigeria is suffering a GDP contraction this year, the first for 25 years, amid widespread dismay at the poor economic management of President Muhammadu Buhari. Mishandling of exchange rate policy – where the naira has dropped by 30% since being freed from its long-standing dollar peg earlier this year – has led to widespread investor concern.

In South Africa, President Jacob Zuma is also under pressure, embroiled in long-running corruption investigations. He seems to be nearing the final stages of efforts to stave off prosecution, with opinion hardening that he will eventually be called to account. Zuma’s gamble of implicating respected Finance Minister Pravin Gordhan in alleged misdemeanours appears to be backfiring.

Long-time political observers such as Peter Bruce, editor-in chief of South Africa’s Business Day, a member of OMFIF’s advisory board, see parallels between the process in South Africa and impeachment of former Brazilian President Dilma Rousseff – seen as strengthening Brazilian democracy and paving the way for a growth revival. Bruce says South Africa is much less worrisome than Nigeria, 'On a Richter scale of governmental and economic problems, I would put Nigeria at 9.5, South Africa at a less troubled 5.'

One of the brighter spots emerging from the 18 October Africa meeting is that pension plans and sovereign funds from around the continent are more open to co-operation and co-investment than in earlier years. There are also early-stage plans for central bank reserve-pooling in different parts of the continent – although these are a long way from becoming reality.

Public funds are working together with private sector groups that can add expertise, lower costs and diversify risks in co-investment opportunities. Some African GPIs are considering investing outside their countries’ own bond markets, in similar fashion to South Africa’s social security funds. In a landmark agreement, Nigeria’s Sovereign Investment Authority has teamed up with South Africa’s Old Mutual investment group to expand joint commercial real estate and agriculture activities in Africa, with total planned commitments of $500m and $200m respectively.

Backing up such investment plans, the African Development Bank is seeking to implement more scientific and reliable ways of benchmarking and monitoring project implementation throughout the region. All these developments are slowly emerging signs that confidence may be returning to Africa.

David Marsh is Managing Director of OMFIF.

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