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R E V I E W
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A F R I C A ]
“There have been calls for cross-
border market infrastructures
such as exchanges and CSDs to
be formed.”
major inhibitors to economic growth.
Despite this, there is reason for opti-
mism. The number of conflicts on the
continent has declined over the last 20
years, and corruption – while still obvi-
ously there – has become less prolific in a
number of markets. Africa does remain a
high-growth market. Tonna said that out
of the top 11 fastest growing economies
globally, six were African. These include
the Ivory Coast, Ethiopia and Rwanda,
the latter of which has made a particular
effort in creating a more business friendly
environment. However, the stock market
remains flat despite this growth.
Fund manager attitudes
Conversations with investors several years
ago had Africa high on their agendas.
The continent’s youthful population and
growth potential looked attractive. This
has not translated into returns as equity
markets have stuttered although managers
point out investors need to view Africa as a
long-term investment. The recent volatility
does, however, present opportunities for
asset managers to purchase distressed
assets at bargain prices.
However, managers recognise there
are major risks in Africa. Political risk
is always present, with some managers
acknowledging the inevitable leadership
succession in Zimbabwe could yield huge
opportunities, but also instability. Others
highlighted political instability was an
issue that affected all markets and that it
was unfair to target Africa. One manag-
er cited the woes impacting Brazil and
political risk in the US, as issues that firms
should be watching carefully.
Currency risk is another problem. The
ability to get US Dollars out of any given
market is not always assured. Egypt and
Nigeria were cited as particularly high on
the currency risk scale.
Private equity managers complained
of a lack of initial public offering (IPO)
activity and exit opportunities, although
this seems to be an issue not just con-
fined to Africa. The run-up and imme-
diate aftermath of Brexit has delayed a
number of IPOs, particularly in Europe.
Improvements have been made though in
Africa around transparency at corporates.
Transparency has been enhanced, with
managers saying they received increased
disclosure and reports from the compa-
nies they are invested in. This will make
international investors more comfortable
about investing into domestic African
companies.
Investment flows and MSCI upgrades
will not happen if market infrastructure
is poor. Attaining market scale is essential
if regimes are to build market infrastruc-
ture. For example, there is no use estab-
lishing a clearing house if OTC derivative
activity does not exist.
However, there have been calls for
cross-border market infrastructures such
as exchanges and CSDs to be formed rath-
er than forcing individual countries to
build their own at cost. There is close col-
laboration through an MOU between the
Johannesburg Stock Exchange (JSE) and
Mauritius Stock Exchange, and some be-
lieve the JSE should step in and become
a cross-border exchange. Nonetheless,
market participants said national politics
may stand in the way of this becoming a
reality. Another complaint is that custody
costs can be very expensive across some
markets, and this can discourage manag-
ers from investing in those jurisdictions.
Summer 2017
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