Transcript Document

African market reform continues
African capital markets follow the Emerging World
Presentation by Des Mahony to the ASEA conference in Accra 27-29 October 2007
Africa is emerging
Africa is emerging
and is set to become an
important global player
•
According to the IMF emerging economies are typically:
– countries with low to middle per capita income
Africa is the last frontier
in emerging markets
– that have undertaken economic development and reform
programs and
– have begun to "emerge" as significant players in the global
economy
Africa is growing and saving
9.0
Africa’s GDP growth rate has
exceeded the world average for
7 year and this trend is
accelerating
Africa ex South Africa
approaching GEM average
9.0
Emerging markets
Africa ex SA
Africa
World
8.0
7.0
6.0
7.0
6.0
5.0
5.0
4.0
4.0
3.0
3.0
2.0
2.0
1.0
1.0
0.0
0.0
2000
28
African savings rates have risen
faster than the rest of the world
8.0
26
24
2001
2002
2003
2004
2005
2006
2007
2008
Africa
World
Africa: Sub-Sahara
Central and eastern Europe
22
Gross national savings
(% of GDP)
20
By the end of this year savings
rates are expected to be 26.3%,
more than 3% higher than the
world’s average savings rate
18
16
14
12
Source: IMF, African Alliance estimates
GDP growth rates
(% y-o-y)
2001
2002
2003
2004
2005
2006
2007
Investment is also increasing
Africa’s investment rate is at
almost 25% of GDP – a massive
gain from 1996 levels
31.0
Emerging markets
Africa
World
29.0
27.0
Investment (% GDP)
25.0
23.0
21.0
19.0
17.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
110.0%
Investment rates exceed those
of the rest of the world
105.0%
100.0%
Also helped by Foreign Direct
Investment flows (FDI)
Investment as a % of GDP
relative to global levels
95.0%
90.0%
85.0%
80.0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF, African Alliance estimates
Foreign direct investment (FDI) flows
* Angola, Algeria, Egypt and
Nigeria excluded
50
0
0
Source: IMF,UNCTAD, World Bank, African Alliance estimates
2007f
50
2006f
100
2005
100
2004
150
2003
150
2002
200
2001
200
2000
250
1999
250
1998
300
1997
300
1996
350
1995
350
1994
African growth is broad based
400
1993
New emphasis on infrastructure
development will see this
continue to grow
400
450
FDI
GDP
1992
FDI is rising as a % of GDP
450
1991
FDI doubled from 1990 to 2000,
and has more than doubled in
the last five years
FDI and GDP for Africa – excluding South Africa and African oil exporting countries
1990
Oil exporting countries
excluded as these distort FDI
flow numbers, but the largest
economies therefore not
included
Economic and financial sector reform need to be aligned
The financial sector oils the
economy
Savings can be put to good
work
•
African economies are improving
– driven by increasingly better educated Africans
– who increasingly demand improving political and economic systems
•
The financial sector provides the link between high savings and high investment
rates
– the financial sector has to keep up with the rapidly changing economies
– provide mechanisms for efficiently allocating capital
•
Banks are changing the way they do business
– less reliance on lending to governments
– focusing on longer term funding to facilitate mortgages
– moving into the lower (microfinance) sectors
•
Markets have changed enormously but reform must continue
– Investors need improving markets
– Companies need access to capital
African markets outperform
African markets have
outperformed the world since
January 2000
Market performance indexed to January 2000
350
300
Although South Africa has
outperformed both EMEA and
Global Emerging Markets,
Africa ex South Africa has
substantially outperformed it
250
350
AA Africa ex SA
MSCI South Africa
MSCI EMEA
MSCI Global Emerging Markets
MSCI World
300
250
200
200
150
150
100
100
50
50
0
0
Jan-00
Jan-01
Jan-02
Source: Bloomberg, African Alliance estimates
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Diversification of risk for global investors
•
Low correlation with global equity markets (Jan 2000 to Sep 2007)
Markets are completely
uncorrelated to Global EMs,
EMEA and South Africa
Africa ex SA
African markets are
uncorrelated
Egypt has -0.05 to 0.15
correlation to other large
markets in Africa
Egypt
South Africa
EMEA
GEM
Africa ex SA
1.00
Egypt
0.80
1.00
South Africa
0.41
0.29
1.00
EMEA
0.44
0.36
0.86
1.00
GEM
0.46
0.39
0.74
0.86
1.00
World
0.34
0.27
0.60
0.75
0.82
World
Source: Bloomberg, MSCI, African Alliance calculations
•
Private equity opportunities provide further diversification
•
New opportunities from privatisation of state assets
1.00
Equity market background
Global Emerging Markets
account for 85% of world
population, yet only one-quarter
of GDP
Population (m)
% total
Recent strong market growth in
Asian disguises the trend in
Africa, where market cap is only
60% of GDP
Market cap should start to
anticipate GDP growth, as it has
done in Asia
GDP ($ bn)
% total
per capita
Market Cap ($ bn)
mkt cap/GDP
But before this gap closes,
capital market structures need
to be strengthened
Source: UN, IMF, Bloomberg, AGA
Companies listed (#)
World
GEM
Africa
Africa ex SA
5,719
4,859
726
685
100.0%
85.0%
12.7%
12.0%
48,421
12,528
1,318
1,063
100.0%
25.9%
2.7%
2.2%
8,467
2,578
1,815
1,553
60,248
17,628
778
278
100.0%
29.3%
1.3%
0.5%
1.24
1.41
0.59
0.26
14,022
3,157
1,044
884
“Investable” African universe (ex SA) - market cap by sector
Liquidity more important than
size: “investable” universe
assumes $30 000 trade per day
Banks and Financial Services
Building and Construction
Telecommunications and IT
>75% of market cap in four
sectors
The size of the primary sector in
Africa explains much of this,
but...
…the next stage of market
development must promote
broadening and deepening of
equity markets
The likely economic growth will
come from Utilities, Consumer,
Tourism, Industrial…
…markets will need to include
these sectors to assist and
capture this growth
Consumer
Investment trusts/Holding companies
2%
3%
Brewing and Beverages
3%
36%
4%
Utilities and Energy
Property and Real Estate
Hotels, Tourism and Leisure
5%
Insurance
Industrial
Agriculture
14%
Oil and Gas
Transport
23%
Other
Pharmaceutical and Health Care
Media
Resources
African investable universe (ex SA) – market cap by country
On our liquidity criteria, only 11
of 17 markets (ex SA) ‘qualify’
as investable
…with 89% of the market cap in
three countries
In terms of capital market
reform, these three (and SA)
must take a leading role
4%
2%2%
EGYPT
MOROCCO
36%
NIGERIA
KENYA
BOTSWANA
25%
IVORY COAST
MAURITIUS
TUNISIA
ZAMBIA
28%
UGANDA
GHANA
Bond markets
Bond markets in Africa have
been held back by macroeconomic instability
But this is a thing of the past,
and the outlook for currencies
and inflation is favourable for
debt issuance
Will the emergence of
infrastructure funds replace the
need for debt issuance?
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Bonds issued in 12 countries…
…of which 8 have credit agency ratings
•
Total issuance $36bn…
…of which $28bn is by governments
•
Weighted average time to maturity is 4.2 years
•
Bond markets need to reform in parallel to equity markets
Bond markets need
Deepening of bond markets
largely a function of national
treasuries
•
More trading - secondary markets important
•
More country and company ratings
•
More corporate bonds
•
Longer maturities
•
Tap issues
•
Fixed rate coupons
Regulatory reform will also help
The elimination of cost based
treatment of bonds in the
pension industry
Investor and equity market requirements
Market reforms will need to
address these
•
Local and Global capital can be harnessed by efficient markets
•
Investors want to see:
– certainty - of owning and selling stock
– market liquidity
– depth and breadth of securities and reflection of the economy
– more and new products (derivatives)
– fair and equal treatment
– ease of trading
– low cost of trading
•
Listed companies want to see:
– ease of raising capital
– efficient pricing
– tax breaks for being listed
– low costs associated with listing
How do we achieve this?
Market players who take reform
seriously and follow through
will be the winners
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Tax breaks to encourage more and varied listings
Encourage listings that reflect the economic mix
Lower trading and settlement costs
– Negotiated brokerage
– Lower statutory charges on higher turnover
More and varied products e.g. derivatives
Dematerialisation
Electronic trading
Information availability – both company and trading
Fair and equal treatment of all investors
Separate brokers from market oversight
Certainty and transparency around new primary issues
Ease of stock placements
Pension industry reform
– More investment products e.g. unit trusts and ETFs
Questions