africa – full of promise
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African Business Research Limited 1-2 Universal House 88 - 94 Wentworth Street London Tel: +44 (0)20 7392 4058. Africa – Full of Promise. Presentation to the 11 th ASEA Conference Accra International Conference Centre 29 October 2007 Dr Ayo Salami. Disclaimer and caveat. - PowerPoint PPT PresentationTRANSCRIPT
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African Business Research Limited
Africa – Full of Promise
Presentation to the 11th ASEA ConferenceAccra International Conference Centre
29 October 2007
Dr Ayo Salami
African Business Research Limited1-2 Universal House88 - 94 Wentworth StreetLondonTel: +44 (0)20 7392 4058
www.africanbusinessresearch.com [email protected]
African Business Research Limited
Disclaimer and caveat
This publication has been prepared by the African Business Research Limited (ABR) for information purposes only and is for the exclusive use of the recipient. We are not soliciting any action based upon the information contained in this publication. The material contained in this publication (i) should not be construed as an offer to sell or a solicitation to buy any security in any jurisdiction; (ii) is based upon information that we consider to be reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Opinions expressed in this publication are current opinions as of the date appearing on this material only and the information including the opinions contained herein are subject to change without notice. ABR will not accept liability for any loss howsoever incurred by any person or financial institution due to any events or actions taken as a consequence of the preparation and dissemination of this document.
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Africa – moving from promises to results
“Africa is indeed on the move. In contrast with the 1990s, conflicts in Africa have declined, economic performance has improved and some clear ‘high performers’ are beginning to emerge.”
World Bank 2006
“Since 1995 there has been at least one African equity market among the top 10 best performing markets in the world. Last year (2006) Malawi was the best performing stock market in the world posting gains of 129% in US dollar terms. Joining Malawi in the top ten stock markets was Morocco (up 88%) and Botswana (up 55%).”
African Business Research
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Why invest in Africa?
Africa: A Lie by Omission
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The view from abroad : Misconceptions about Africa
Investing in Africa is risky
The region is a basket case that is politically unstable
Regulations are insurmountable
There are no investment opportunities
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Africa in Perspective:- Land mass and proportion of world’s resources
United States
China
India
Europe
Argentina New Zealand
China 3,705,390
United States 3,618,770
India 1,266,595
Europe 1,905,000
Argentina 1,065,189
New Zealand 103,736
11,664,680
Square miles
Africa 11,707,000
Resources
Land mass - 20%
Diamonds - 90%
Gold - 50%
Phosphate - 90%
Platinum - 40%
Petroleum - 8%
Natural Gas - 12%
Source: Academic Centre for Education Development
Source: Ayittey, George B.N. Africa Betrayed, 1993, Palgrave Macmillan , ISBN: 0312104006
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“Wind of change” blowing across Africa – declining political risk1980 2007
Democratic countries
Undemocratic countries
Wobbly Democracies
Source: African Business Research
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African Business Research Limited
Africa population and GDP growth (ex South Africa)
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Population (grow th) Grow th in real GDP Grow th in real per capita GDP
Since 1995, Real GDP growth has
exceeded population growth
12 consecutive years of growth in real per capita GDP
Source: World Bank data
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Sound monetary policies ….
Budget deficts (Africa ex-South Africa)
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Def
icit
as
% o
f G
DP
25.0
30.0
35.0
40.0
45.0
50.0
Bu
dg
et d
efic
it (
US
$bn
)
Budget Deficit (US$ billions) Deficit Including Grants as % of GDP
Deficit Excluding Grants as % of GDP
Budget deficits have declined sharply since
1992
Source: World Bank data
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… have controlled money supply and reduced inflation
Inflation and money supply (Africa- incl South Africa)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Infl
atio
n (
%)
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Mo
ney
su
pp
ly (
%)
Year-On-Year % in price index Growth in money supply Ratio of money supply to GDP
Source: World Bank data
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External debt is becoming sustainable
External Debt Burden (ex South Africa)
200
220
240
260
280
300
320
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Ext
ern
al D
ebt
(US
D b
illio
ns)
5.0%
15.0%
25.0%
35.0%
45.0%
55.0%
65.0%
75.0%
85.0%
95.0%
105.0%
Ext
ern
al D
ebt
as %
of
GD
P
External Debt External debt as % of GDP Debt service to exports ratio
Source: World Bank data
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With a little help from our friends in ChinaAs the Chinese economic resurgence has proceeded, Africa has become more important for China as a source of the raw materials needed by the Chinese manufacturing sector.
African economies, in particular oil and commodity producers have benefited substantially from China’s demand for raw materials
The historical trade deficit with China’s has now become a surplus
Source: WTO Direction of trade statistics
0
2000
4000
6000
8000
10000
12000
14000
16000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
US
Dol
lar
mill
ion
s
China Imports from Africa China Exports to Africa
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Low correlation with other global markets offers diversification opportunities
Correlation matrix between regional equity markets
Africa AsiaEmerging markets Far East G7 Countries
Latin America
South Africa
World Index
World Small Companies
Africa (ex South Africa) 100%Asia -9% 100%Emerging markets -7% 88% 100%Far East -10% 99% 86% 100%G7 Countries 12% 18% 43% 17% 100%Latin America -14% 6% 44% 5% 57% 100%South Africa 3% 42% 58% 40% 22% 7% 100%World Index 14% 21% 46% 20% 99% 57% 24% 100%World Small Companies 14% 22% 46% 21% 90% 46% 28% 90% 100%
Correlation coefficients based on daily equity returns between 1/1/2000 and 29/09/2006
Source: MSCI, African Business Research
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African Business Research Limited
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
West A
frica
Su
b-S
aharan
Africa
Africa (ex-S
Africa)
East A
frica
No
rth A
frica
So
uth
ern A
frica
Ind
ia
Japan
Ch
ina
Asia
Far E
ast
Germ
any
Un
ited S
tates
G7 In
dex
Wo
rld In
dex
Eu
rop
e
Ru
ssia
Un
ited K
ing
do
m
Eastern
Eu
rop
e
Em
ergin
g M
arkets
So
uth
Africa
Latin
Am
erica
Brazil
Anybody heard of Sub-Prime?
USD Returns to various equity markets over the period 19 July to 15 August 2007
On July 19, 2007, the Dow Jones Industrial Average hit a record high, closing above 14,000 for the first time. By August 15, the Dow had dropped below 13,000 and the S&P 500 had crossed into negative territory year-to-date.
The correction in global equity markets following the sub-prime crisis had minimal impact on Africa
Source: MSCI, African Business Research
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-10%
-8%
-6%
-4%
-2%
0%
2%
4%
North A
frica
West A
frica
Africa ex-S
Africa
Sub-S
aharan Africa
Southern A
frica
Japan
US
A
G7 C
ountries
World Index
Europe
East A
frica
United K
ingdom
Latin Am
erica
Germ
any
Brazil
Far E
ast
Asia
Em
erging Markets
India
Eastern E
urope
Russia
South A
frica
China
Did you say something happened in China? Sorry we missed it!
USD Returns to various equity markets over the 2 week period 26 Feb to 9 March 2007
The sell-off in global equity markets following the correction in China in February did not affect Africa
On February 27, 2007, the Shanghai index plunged 8.8%, its biggest one day drop in a decade following rumors of the introduction of capital gains tax on equity investments. Over the next two weeks, most global markets followed with sharp declines.
Source: MSCI, African Business Research
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African equity markets – Great returns
Annual returns to African equity markets (ex – South Africa) over 1995 – 2006
-40%
-20%
0%
20%
40%
60%
80%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Average
-11%
24%
6%
-12%
28%
-28% -28%
-2%
65%
55%65%
11%
32%
Source: Local Stock Exchanges, African Business Research
Average annual returns of 13% (in US$) over the last 12 years from Jan. 1995 to December 2004, relative to 8% for SA, 6.3% for G7 countries and 6.6% for the All Global equities markets.
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Equity returns among the best in the world
Average annual returns to various regions (1995 to 2006)
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%E
aste
rnE
urop
e
Afr
ica
(ex
S.A
fric
a)
Latin
Am
eric
a
Sou
th A
fric
a
Em
ergi
ngM
arke
ts
G7
Cou
ntrie
s
Asi
a
Far
Eas
t
14%
14%
13%
8%
7% 6%
0.5%
-0.5
%
Source: MSCI, African Business Research
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African Business Research Limited
-20%
0%
20%
40%
60%
80%
100%
120%
140%M
alaw
i
Mor
occo
Bot
swan
a
Ken
ya
Tun
isia
Mau
ritiu
s
Nig
eria
Uga
nda
Zam
bia
Nam
ibia
Zim
babw
e
Egy
pt
BR
VM
Sw
azila
nd
Gha
na
Avg
(ex
S A
fric
a)
Sou
th A
fric
a
129%
88%
55%47%
45%38% 35%
26%15% 13% 13% 12%
7% 2%
-1%
32%25%
2006 – Another vintage year
Average annual returns for 2006 of 32% (in US$), relative to 25% for South Africa, 29% for emerging markets, and 16% for G7 countries.
US$ Returns to African equity markets (2006)
Source: Local Stock Exchanges, African Business Research
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2007 – Looking good for your money
-10%
10%
30%
50%
70%
90%
110%
Zam
bia
Mal
awi
BR
VM
Nig
eria
Bot
swan
a
Mor
occo
Mau
ritiu
s
Nam
ibia
Egy
pt
Tun
isia
Gha
na
Uga
nda
Swaz
iland
Ken
ya
Zim
babw
e
Avg
(ex
S A
fric
a)
Sout
h A
fric
a
106%
92%88%
60% 58
44% 40%
29%27%
18%13% 11%
0% -5%-9%
36%
22%
US$ Returns to African equity markets (9 months to September 2007)
Source: Local Stock Exchanges, African Business Research
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0%
100%
200%
300%
400%
500%
600%
700%
800%
900%19
91
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Sep
-07
Cu
mu
lati
ve r
etu
rns
(%)
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
An
nu
al %
lo
ss o
n c
urr
ency
Annual % loss on currency Cumulative $ returns
Despite currency depreciation, cumulative
$returns are positive averaging 16%
Lose on the currency swing – Gain on the growth roundaboutEquity returns in US$ since 1991 (excluding South Africa and Zimbabwe)
Source: Local Stock Exchanges, African Business Research
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0%
5%
10%
15%
20%
25%
30%
35%
40%
Eastern
Europe
Far E
ast
Asia
Latin Am
erica
Africa (ex
S.A
frica)
Em
ergingM
arkets
South A
frica
G7 C
ountries
World Index
37% 34%34% 34% 34%
30% 30%
17% 17%
What about volatility? – “Give a dog a bad name”
Standard deviation of annual returns (1995 – 2006)
The risk from investing in Africa is similar to that of other emerging markets.
The perception that Africa is inherently riskier is not supported by data
Source: MSCI, African Business Research
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-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
Eastern
Europe
Africa (ex
S.A
frica)
Latin Am
erica
World Index
G7 C
ountries
South A
frica
Em
ergingM
arkets
Asia
Far E
ast44% 42% 34%
30%30%
25%
17%
1%
-3%
Risk – Return Ratio: How “Sharpe” is that?
Sharpe ratio for Africa is 2.5x better than for emerging markets generally
Source: MSCI, African Business Research
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0
5
10
15
20
25
30
35
40
45
Asia
G7 C
ountries
World Index
Far E
ast
Africa (ex
South A
frica)
South A
frica
Eastern
Europe
Em
ergingM
arkets
Latin Am
erica
Nu
mb
er o
f lo
sin
g m
on
ths
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Ris
k o
f lo
ss
Number of losing months Risk of loss
41 4039 39
3836
34 32 31
You think I am a loser, wait till you meet my siblingsNumber of losing months (Jan 2000 to Sept 2007, 93 Months )
Risk of Loss for Africa is similar to other regions of the world Source: MSCI, African Business Research
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Historic Value At Risk – Always look on the bright side of life
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
World Index
G7 C
ountries
Africa (ex S
outhA
frica)
Asia
Far E
ast
Em
erging Markets
South A
frica
Latin Am
erica
Eastern E
urope
Lowest Monthly Return Highest Monthly Return
Outside the developed world, Africa has the lowest Historic VAR
Source: MSCI, African Business Research
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Spreading equity culture reflected in rising turnover
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
2000 2001 2002 2003 2004 2005 2006
An
nual
Tra
ded
Vol
ume
(US$
bil
lion
)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Tur
nov
er R
atio
(%
)
Annual Traded Volume Turnover ratio
Annual traded volume has increased by 4x since 2000
Source: Local Stock Exchanges, African Business Research
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0%
10%
20%
30%
40%
50%
60%
70%
Above $1 million per day Between $0.25m and $1million per day
Between $0.1m and$0.25 million per day
Below $0.1 million per day
Pro
po
rtio
n o
f to
tal m
arke
t ca
pit
lisat
ion
(%
)
2006 2000
32
8
64
1049 22
773
1140
Trading Liquidity: “I am a foreigner, get me out of here”
Daily Traded Volume for Africa (ex South Africa) There are stocks on the continent with reasonable trading liquidity.
32companies constituting 45% of the total market capitalisation trade more than $1 million per day.
Over 140 stocks trade more than $0.1 million per day
Source: Local Stock Exchanges, African Business Research
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Dynamics of economic reform
Cost of input
Exp
ecte
d O
utpu
t
Public sector output
Private sector output
Total output
Source: Olivier Blanchard; The Economics of Post-Communist Transition
X
Africa is just beginning to realise the benefits of the economic restructuring of the 1990’s.
Africa has had the pain, the gains are about to become evident
15 years ago, Africa would not have been able to cope with a doubling of energy prices. Despite recent doubling of oil prices few African countries have required balance of payments support from the IMF.
The continent is less vulnerable to external shocks.
We believe Africa is positioned here on the growth curve
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Would you invest in these countries?
A country recently endured a long and bloody civil war, the assassination of its president, a financial panic and an influx of poor immigrants
A country formed from the ruins of a vanquished army forced from its historic homeland to a small barren island
A country divided after a long and destructive civil war and still technically at a state of war
A country that started a regional war, suffered a humiliating defeat, heavy bombing that destroyed its infrastructure and without a history of civil liberties or democratic government
United States of America
Taiwan
Korea
Japan
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ABR: Who are we?
Mapping the African Business Terrain
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What do we offer
Unparalleled access to financial information on African equities
Data-base of over 8,000 securities quoted on 22 stock exchanges in Africa
Commissioned research – bespoke reports, in-house periodical reviews
Regional knowledge base and experience
Cutting edge research methodologies
Large contacts with African companies, investors and policy makers
Independence
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Website offering: www.africanfinancialmarkets.com
The website is divided into six section:-
• Company Analysis
• Macro-economy and Politics
• Pan African Equity Analysis
• Currency Exchange Rate
• Research
• News Archive
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Research - Africa All-Share (ex South Africa) Index
The Index is a composite measure of the average performance of all stock exchanges in Africa excluding South Africa. It covers all companies listed on African Stock exchanges (excluding South Africa) that conform to a minimum size and trading liquidity requirement.
Index segmentation
Size (Large, Medium, Small company indices)
Economic sector (Financials, Services, Industrials, Utilities, Natural Resources)
Geographic segmentation (East, North, South, West, Sub-Saharan Africa)
ABR calculates over 60 different pan-African equity indices
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Let’s start running
“Every morning in Africa, a Gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed. Every morning a Lion wakes up. It knows it must outrun the slowest Gazelle or it will starve to death. It doesn't matter whether you are a Lion or a Gazelle... when the sun comes up, you'd better be running.”
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Conclusion: ‘If you see a bandwagon, you have missed it”
Contrary to perception Africa offers significant growth and profit opportunities
Africa is still under the radar of most investors and hence offers great opportunities to the early adopters
Future equity returns from developed markets are projected to be significantly lower than historic levels
Spreading equity culture and rising trading volumes
Returns outweigh currency depreciation
A credible and peaceful future of the world in the 21st century must include a positive future for Africa
Development of efficient financial markets is integral to the alleviation of poverty