Transcript Africa
African Business Research Limited 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 11th ASEA Conference Accra International Conference Centre 29 October 2007 Dr Ayo Salami 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. www.africanbusinessresearch.com [email protected] African Business Research Limited 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 www.africanbusinessresearch.com [email protected] African Business Research Limited Why invest in Africa? Africa: A Lie by Omission www.africanbusinessresearch.com [email protected] African Business Research Limited 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 www.africanbusinessresearch.com [email protected] African Business Research Limited Africa in Perspective:- Land mass and proportion of world’s resources United States India Argentina New Zealand Square miles Resources China 3,705,390 United States 3,618,770 India 1,266,595 Europe 1,905,000 Argentina 1,065,189 New Zealand China Europe 103,736 Land mass - 20% Diamonds - 90% Gold - 50% Phosphate - 90% Platinum - 40% Petroleum - 8% Natural Gas - 12% 11,664,680 Africa 11,707,000 www.africanbusinessresearch.com Source: Academic Centre for Education Development Source: Ayittey, George B.N. Africa Betrayed, 1993, Palgrave Macmillan , ISBN: 0312104006 [email protected] African Business Research Limited “Wind of change” blowing across Africa – declining political risk 1980 2007 Undemocratic countries Democratic countries Wobbly Democracies Source: African Business Research www.africanbusinessresearch.com [email protected] African Business Research Limited 12 consecutive years of growth in real per capita GDP Africa population and GDP grow th (ex South Africa) Since 1995, Real GDP grow th has exceeded population grow th 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% Population (grow th) Grow th in real GDP 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 -3.0% Grow th in real per capita GDP Source: World Bank data www.africanbusinessresearch.com [email protected] African Business Research Limited Sound monetary policies …. Budget deficts (Africa ex-South Africa) Budget deficits have declined sharply since 1992 16.0% 50.0 45.0 14.0% 12.0% 40.0 10.0% 35.0 8.0% 30.0 6.0% Budget Deficit (US$ billions) 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 25.0 1988 4.0% Budget deficit (US$bn) Deficit as % of GDP 18.0% Deficit Including Grants as % of GDP Deficit Excluding Grants as % of GDP Source: World Bank data www.africanbusinessresearch.com [email protected] African Business Research Limited … have controlled money supply and reduced inflation Inflation and money supply (Africa- incl South Africa) 25.0% 30.0% 25.0% 20.0% 15.0% 15.0% 10.0% 5.0% 10.0% 0.0% Money supply (%) Inflation (%) 20.0% -5.0% 5.0% -10.0% 0.0% -15.0% 2004 2003 2002 2001 Growth in money supply 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 Year-On-Year % in price index Ratio of money supply to GDP Source: World Bank data www.africanbusinessresearch.com [email protected] African Business Research Limited External debt is becoming sustainable External Debt Burden (ex South Africa) 105.0% 95.0% 300 85.0% 75.0% 280 65.0% 260 55.0% 45.0% 240 35.0% 25.0% 220 External Debt as % of GDP External Debt (USD billions) 320 15.0% External Debt External debt as % of GDP 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 5.0% 1988 200 Debt service to exports ratio Source: World Bank data www.africanbusinessresearch.com [email protected] African Business Research Limited With a little help from our friends in China As 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. 16000 14000 US Dollar millions 12000 10000 African economies, in particular oil and commodity producers have benefited substantially from China’s demand for raw materials 8000 6000 4000 The historical trade deficit with China’s has now become a surplus 2000 0 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 China Imports from Africa China Exports to Africa Source: WTO Direction of trade statistics www.africanbusinessresearch.com [email protected] African Business Research Limited Low correlation with other global markets offers diversification opportunities Correlation matrix between regional equity markets Africa (ex South Africa) Asia Emerging markets Far East G7 Countries Latin America South Africa World Index World Small Companies Africa Asia 100% -9% 100% -7% 88% -10% 99% 12% 18% -14% 6% 3% 42% 14% 21% 14% 22% Emerging markets 100% 86% 43% 44% 58% 46% 46% Far East G7 Countries 100% 17% 5% 40% 20% 21% 100% 57% 22% 99% 90% Latin America 100% 7% 57% 46% South Africa 100% 24% 28% World Index 100% 90% World Small Companies 100% Correlation coefficients based on daily equity returns between 1/1/2000 and 29/09/2006 Source: MSCI, African Business Research www.africanbusinessresearch.com [email protected] African Business Research Limited Anybody heard of Sub-Prime? USD Returns to various equity markets over the period 19 July to 15 August 2007 10% 5% 0% The correction in global equity markets following the sub-prime crisis had minimal impact on Africa -5% -10% -15% -20% -25% Brazil Latin America South Africa Emerging Markets Eastern Europe United Kingdom Russia Europe World Index G7 Index United States Germany Far East Asia www.africanbusinessresearch.com China Japan India Southern Africa North Africa East Africa Africa (ex-SAfrica) Sub-Saharan Africa West Africa Source: MSCI, African Business Research 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. [email protected] African Business Research Limited 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 4% 2% 0% The sell-off in global equity markets following the correction in China in February did not affect Africa -2% -4% -6% -8% -10% China South Africa Russia Eastern Europe India Emerging Markets Asia Far East Brazil Germany Latin America United Kingdom East Africa Europe www.africanbusinessresearch.com World Index G7 Countries USA Japan Southern Africa Sub-Saharan Africa Africa ex-SAfrica West Africa North Africa Source: MSCI, African Business Research 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. [email protected] African Business Research Limited African equity markets – Great returns Annual returns to African equity markets (ex – South Africa) over 1995 – 2006 80% 65% 65% 55% 60% 40% 28% 24% 32% 20% 11% 6% 0% -2% -20% -12% -11% -28% -28% 2000 2001 -40% Average 2006 2005 2004 2003 2002 1999 1998 1997 1996 1995 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. Source: Local Stock Exchanges, African Business Research www.africanbusinessresearch.com [email protected] African Business Research Limited Equity returns among the best in the world 13% 14% 14% 16% 14% Average annual returns to various regions (1995 to 2006) 7% 10% 8% 6% 8% 12% -0.5% Far East 2% 0.5% 4% Asia 6% 0% G7 Countries Emerging Markets South Africa Latin America Africa (ex S.Africa) Eastern Europe -2% Source: MSCI, African Business Research www.africanbusinessresearch.com [email protected] African Business Research Limited 2006 – Another vintage year US$ Returns to African equity markets (2006) 140% 129% 120% 88% 100% 80% 55% 60% 47% 45% 40% 38% 35% 32% 26% 15% 20% 13% 13% 12% 7% 25% 2% 0% -1% South Africa Avg (ex S Africa) Ghana Swaziland BRVM Egypt Zimbabwe Namibia Zambia Uganda Nigeria Mauritius Tunisia Kenya Botswana Morocco Malawi -20% Average annual returns for 2006 of 32% (in US$), relative to 25% for South Africa, 29% for emerging markets, and 16% for G7 countries. Source: Local Stock Exchanges, African Business Research www.africanbusinessresearch.com [email protected] African Business Research Limited 2007 – Looking good for your money US$ Returns to African equity markets (9 months to September 2007) 106% 92% 90% 88% 70% 60% 58 50% 44% 40% 36% 29% 22% 18% Source: Local Stock Exchanges, African Business Research www.africanbusinessresearch.com -5% -9% South Africa 0% Zimbabwe Uganda Ghana Tunisia Egypt Namibia Mauritius Morocco Botswana Nigeria BRVM Malawi -10% Zambia 10% Kenya 13% 11% Swaziland 27% 30% Avg (ex S Africa) 110% [email protected] African Business Research Limited Lose on the currency swing – Gain on the growth roundabout Equity returns in US$ since 1991 (excluding South Africa and Zimbabwe) Despite currency depreciation, cumulative $returns are positive averaging 16% 10% Annual % loss on currency Sep-07 -30% 2006 0% 2005 -25% 2004 100% 2003 -20% 2002 200% 2001 -15% 2000 300% 1999 -10% 1998 400% 1997 -5% 1996 500% 1995 0% 1994 600% 1993 5% 1992 700% 1991 Cumulative returns (%) 800% 15% Annual % loss on currency 900% Cumulative $ returns Source: Local Stock Exchanges, African Business Research www.africanbusinessresearch.com [email protected] African Business Research Limited What about volatility? – “Give a dog a bad name” Standard deviation of annual returns (1995 – 2006) 40% 37% 34% 34% 34% 34% 35% 30% 30% 30% 25% 17% 20% 17% 15% 10% 5% 0% The risk from investing in Africa is similar to that of other emerging markets. World Index G7 Countries South Africa Emerging Markets Africa (ex S.Africa) Latin America Asia Far East Eastern Europe The perception that Africa is inherently riskier is not supported by data Source: MSCI, African Business Research www.africanbusinessresearch.com [email protected] African Business Research Limited Risk – Return Ratio: How “Sharpe” is that? 45.0% 44% 40.0% 42% 34% 30% Sharpe ratio for Africa is 2.5x better than for emerging markets generally 30% 35.0% 30.0% 25% 25.0% 17% 20.0% 15.0% 10.0% 1% 5.0% 0.0% -3% -5.0% Far East Asia Emerging Markets South Africa G7 Countries World Index Latin America Africa (ex S.Africa) Eastern Europe Source: MSCI, African Business Research www.africanbusinessresearch.com [email protected] African Business Research Limited You think I am a loser, wait till you meet my siblings Number of losing months (Jan 2000 to Sept 2007, 93 Months ) 41 40 50% 39 39 Number of losing months 40 38 45% 36 34 35 32 31 40% 35% 30 30% 25 25% 20 20% 15 Risk of loss 45 15% 10 10% 5 5% 0 0% Latin America Emerging Markets Eastern Europe South Africa Africa (ex South Africa) Far East World Index G7 Countries Asia Number of losing months Risk of loss Risk of Loss for Africa is similar to other regions of the world Source: MSCI, African Business Research www.africanbusinessresearch.com [email protected] African Business Research Limited Historic Value At Risk – Always look on the bright side of life 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Eastern Europe Latin America South Africa Emerging Markets Far East Asia Africa (ex South Africa) G7 Countries World Index Low est Monthly Return Highest Monthly Return Outside the developed world, Africa has the lowest Historic VAR Source: MSCI, African Business Research www.africanbusinessresearch.com [email protected] African Business Research Limited Spreading equity culture reflected in rising turnover 50.00 25.0% 40.00 20.0% 35.00 30.00 15.0% 25.00 20.00 10.0% 15.00 10.00 Turnover Ratio (%) Annual Traded Volume (US$ billion) 45.00 Annual traded volume has increased by 4x since 2000 5.0% 5.00 - 0.0% 2000 2001 2002 2003 Annual Traded Volume 2004 2005 2006 Turnover ratio Source: Local Stock Exchanges, African Business Research www.africanbusinessresearch.com [email protected] African Business Research Limited Trading Liquidity: “I am a foreigner, get me out of here” Proportion of total market capitlisation (%) Daily Traded Volume for Africa (ex South Africa) 70% 1140 60% 50% 32 40% 64 30% 20% 8 773 49 10 22 10% 0% Above $1 million per day Between $0.25m and $1 million per day 2006 Between $0.1m and $0.25 million per day Below $0.1 million per day 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 2000 Source: Local Stock Exchanges, African Business Research www.africanbusinessresearch.com [email protected] African Business Research Limited Dynamics of economic reform We believe Africa is positioned here on the growth curve Africa is just beginning to realise the benefits of the economic restructuring of the 1990’s. Expected Output Total output X Africa has had the pain, the gains are about to become evident Private sector output Public sector output Cost of input Source: Olivier Blanchard; The Economics of Post-Communist Transition www.africanbusinessresearch.com 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. [email protected] African Business Research Limited 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 United States of America A country formed from the ruins of a vanquished army forced from its historic homeland to a small barren island Taiwan A country divided after a long and destructive civil war and still technically at a state of war Korea 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 Japan www.africanbusinessresearch.com [email protected] African Business Research Limited ABR: Who are we? Mapping the African Business Terrain www.africanbusinessresearch.com [email protected] African Business Research Limited 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 www.africanbusinessresearch.com [email protected] African Business Research Limited 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 www.africanbusinessresearch.com [email protected] African Business Research Limited 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 www.africanbusinessresearch.com [email protected] African Business Research Limited 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.” www.africanbusinessresearch.com [email protected] African Business Research Limited 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 www.africanbusinessresearch.com [email protected]