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Global crisis tests investor
faith in Africa |
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ADDIS
ABEBA(December 10,2008)NAIROBI - Kenyan-born trader
Aly Khan Satchu had a long and successful career in the City of London,
but succumbed to the lure of Africa a few years back.
"I knew there were out-sized gains to be made here. I wasn't
wrong," said the 43-year-old father-of-three, who returned in
2005 with his family to trade oil and African bourses.
But with the world entering recession, and many forced to cut back
on just the sort of far-flung investment Africa was thriving on, did
Satchu and other Africa bulls get it wrong?
The global credit crisis, hard on the heels of food and fuel price
shocks in first half 2008, has weakened currencies, sent shares plummeting
and forced GDP forecasts down around Africa.
"This is a temporary blip," said Satchu who writes a lively
stocks column for a local paper and has penned a popular book "Anyone
Can Be Rich". "I remain supremely optimistic still. You
are going to get these periods of stress and strain -- but there is
a new world coming in Africa."
Until recently, few would have dissented from such optimism.
Africa was viewed as the last, most exciting frontier market, with
a huge potential for growth just starting to be seriously tapped.
Foreign investment doubled to $315 billion between 2000 and 2006,
according to Bank of America.
New players like China and India were pouring money in, from roads
to oil exploration.
The middle class was burgeoning. And growth levels had been on a steady
path since the mid-1990s.
Then along came the credit crisis, and the mood changed.
At first, African policy-makers were upbeat, pointing out their banking
systems were relatively unexposed and their economic fundamentals
rooted on internal growth and demand factors that appeared unlikely
to change.
But as the depth of the global crisis has become apparent, so too
has the real impact for Africa. "Hot", hedge-fund money
has, in some places, disappeared as fast as it came -- witness Kenya's
hottest stock, mobile phone firm Safaricom where foreign investors
bought in big only to bail out quick.
The stock shot from 5 shillings to nearly 9 after its IPO, but has
fallen back since to around 3.5.
"NO REASON FOR PANIC"
Remittances from Africans abroad, a huge but often under-the-table
factor behind growth at home, are slowing.
Funds are under pressure to trim their exposure to risky assets, though
relatively low levels of involvement in Africa compared to other emerging
markets limited falls, analysts say.
Illustrative of the new climate, Ghana's Ecobank had a slow take-up
on foreign subscriptions for a $2.5 billion cross-border share offer,
while Kenya, Tanzania and
Zambia are waiting for better conditions to launch international bonds.
Foreign aid may suffer too. And slower growth in China and other Asian
economies is bound to impact investment in Africa.
"I'm quite bearish on African frontier markets. There's been
a lot of money allocated and I think a lot will be unwound,"
said Michael Cirami, portfolio manager at Eaton Vance.
Cirami, whose fund has reduced its exposure to Africa in the short-term,
said there was some complacency on the continent - "similar to
the way that eastern Europeans were last year".
Debt write-offs were a one-off boost, and the commodities boom had
come off, he noted. "And we are seeing some worrying violence.
Kenya was the wake-up call and DRC is a huge issue.
Post-election violence exacerbated a tough year for Kenya, while violence
in mineral-rich east Congo has reminded investors of the serious political
risk in many parts of Africa.
Long-term though, the prospects remain good, analysts say, even though
some of the shine may have come off Africa.
Fundamentals remain strong in sub-Saharan Africa's so-called "Alpha"
nations like South Africa, Nigeria, Ghana and Kenya.
The IMF predicts a slight dip in growth for sub-Saharan Africa, but
still at about 6 percent this year and next.
So the corporate world has not lost all its enthusiasm.
Eyeing huge untapped demand in Africa, Britain's Vodafone is snapping
up an extra stake in South Africa's Vodacom, giving it access to five
new mobile markets on the continent.
South African firms are not letting up either on their push north
as they seek to offset slower domestic growth.
Telkom, for example, plans to use cash from selling its stake in Vodacom
to expand in Africa. And insurer Liberty earmarked 700 million rand
($70 million) for the same.
"Despite the severe pessimism about the global economy following
the extraordinary meltdown of the Western financial system, the outlook
for Africa remains very bright," said African Business editor
Anver Versi.
He cited Africa's banking expansion, more inter-African trade and
growth of mobile phone use as positive factors.
But some once-favoured economies are already feeling the pinch. Nigeria's
naira currency has fallen 10 percent in a week and a half, following
sharp falls in the stock market as investors digest the collapse of
oil prices from almost $150 a barrel in July to less than a third
of that now.
With liquidity drying up, Nigeria spent $900 million just on Friday
to restart the interbank forex market but banks are reluctant to trade
at current rates, fearing further falls.
As commodities besides oil also fall, some new mining projects are
being mothballed and growth forecasts cut.
"Africa -- outside South Africa -- has the advantage that it
is less developed and so less exposed to global markets," said
Claire Dissaux, global strategist at fund manager Millennium Global.
"But at the same time, it is very exposed to commodity prices
and that is much more of a problem."
However, an analysis by Nigerian bank UBA Capital forecast Africa's
exports would decline only modestly while banks were helped by capital
controls. "While there is no room for complacency about growth
prospects, there is still no reason to panic," wrote UBA researcher
Richard Segal. |
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