Africa investment: back on?

November 23, 2009

Could it be that rock bottom interest rates in the developed world are finally driving money into Africa?

Corruption, bureaucracy and uncertainties over debt restructuring all remain as barriers to investment in Africa, but overall the climate is improving, at least according to emerging market specialists who gathered recently at Thomson Reuters’ London headquarters for panel discussions on African investment.

There has been a lack of both opportunity and willingness for international investors to get back into Africa, after many pulled out as a result of the global financial crisis.

But that is starting to change as minimal interest rates in developed countries once more propel investors to higher-yielding, growing economies.  Michael Hugman, emerging markets strategist at Standard Bank, told the conference:

The crisis for Africa should be a relatively short-term deviation. People are finally waking up to the fact that OECD countries are offering  little over 1 percent.

Postponed international bonds may once more be on the road, with Kenyan Central Bank Governor Njuguna Ndung’u promising the conference Kenya will launch a planned debut Eurobond next year.

A loan to Angola was likely to be approved this week, delegates from the International Monetary Fund said, adding they were “cautiously optimistic” on Africa’s growth outlook.

However, Africa is unlikely to return to the heady days of 2007, when, according to David Cowan, Africa strategist at Citi, “you could just make up a country in Africa”, assign it a mythical commodity export, and investors would come flocking.


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The very bottom line is that Africa is the last Convergence Trade going, it is very late cycle and is an IT and Communications driven Convergence. The Low Base Effect is also compelling. The High BETA Pull Back [Fat Tail] that we are emerging from is nearing its completion. The Fat Tail was more a consequence of Fast Money hitting the Ejector Button. The draw down in Asset Values was a function more of the Illiquidity inherent in our markets and lack of absorption capacity.And that is Binary. Just as we delved deeper than most Models expected, we are set to bounce a great deal harder than most are allowing for.I would also argue that Africa is set to be much more closely tied to BRIC and in many ways, what happens in the Halls of Beijing is more important than in Washington. The Continent has turned East. Fund Managers sitting in the Developed World fail to properly comprehend the opportunity.The markets have never been Efficient otherwise why on Earth is the State of Qatar trading at 185 bps over US Treasuries?Aly-Khan alykhansatchu

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