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InvestAD EIU Africa Report 2012 en
InvestAD EIU Africa Report 2012 en
Africa
Institutional
investor
intentions
to 2016
An Invest AD report written by the Economist Intelligence Unit
Into Africa
Institutional investor intentions to 2016
Contents
Foreword
Preface
Key findings
11
15
18
Conclusion
20
21
Into Africa
Institutional investor intentions to 2016
Foreword
Africa is no longer a leap of faith
Even well informed observers have written
off Africa as riven by war, corruption and
poverty, but since the emergence of China
and India as economic growth engines,
many are now asking whether this
continent of one billion people can also
achieve its own economic miracle.
These are still early days but there is no
doubting the promising signs, politically
and economically.
At a time of huge change, societies
are showing that they can adapt, on
the whole, peacefully. In the last year,
Nigeria, Tunisia, Zambia and Rwanda
have held elections hailed as free and
fair by international observers, while a
referendum created the new nation of
South Sudan.
Along with greater political stability,
has come policy continuity and improved
governance -- prerequisites for attracting
the long-term investment to generate
sustainable economic development.
As this report shows, many global
institutional investors are now seriously
intending to take a significant step into
Africa. This is obviously good news, as
it shows that large pools of capital are
available to sustain the current highsingle-digit growth needed to absorb a
growing and youthful population into the
workforce.
Into Africa
Institutional investor intentions to 2016
Preface
Into Africa
Institutional investor intentions to 2016
Into Africa
Institutional investor intentions to 2016
Key findings
Into Africa
Institutional investor intentions to 2016
2011
2012
North America
Western Europe
2013
2014
2015
2016
Into Africa
Institutional investor intentions to 2016
66
Frontier Asia (eg. Vietnam, Mongolia)
44
Latin America (eg. Argentina, Colombia)
29
Middle East (eg. Oman, Lebanon)
22
Central and Eastern Europe (eg. Estonia, Serbia)
17
Source: Invest AD-EIU survey, August & September 2011
Africa in figures
l 54 countries, hosting 29 stock
exchanges
l Over 1bn people, speaking over 1,000
languages, with 41% under the age of 15
l 52 cities of at least 1m people, with
mobile phone penetration of about 50%
l Over 300m people now classified as
middle class, up 27% from 2000
l 60% share of the worlds arable land
yet to be cultivated
Into Africa
Institutional investor intentions to 2016
2011
2012
Oil-exporting countries Angola, Cameroon, Chad, Rep. of Congo, Equatorial Guinea, Gabon, Nigeria
7.8
6.7
6.9
Middle-income countries (excluding South Africa) Botswana, Cape Verde, Lesotho, Mauritius, Namibia,
Seychelles, Swaziland
3.7
4.7
5.1
Low-income countries Benin, Burkina Faso, Ethiopia, Ghana, Kenya, Madagascar, Malawi, Mali,
Mozambique, Niger, Rwanda, Senegal, Tanzania, Uganda, Zambia
6.0
6.1
6.7
Fragile countries Burundi, Central African Republic, Comoros, Democratic Rep. of Congo, Cte dIvoire,
Eritrea, Gambia, Guinea, Guinea-Bissau, Liberia, Sao Tome & Principe, Sierra Leone, Togo, Zimbabwe
3.4
0.6
5.7
Source: IMF
Into Africa
Institutional investor intentions to 2016
Botswana
37
30
Namibia
41
41
Gabon
57
43
Mauritius
40
45
Senegal
56
46
Zambia
70
46
Ghana
64
49
Tanzania
57
49
Mozambique
63
51
Uganda
61
52
Cameroon
62
53
Equatorial Guinea
65
54
Angola
4
78
55
Nigeria
What is your current overall allocation to assets in Africas frontier markets and what
do you expect it to be in three and five years time respectively?
(% of respondents)
55
56
Now
In 3 years time
In 5 years time
Ethiopia
Zero
64
21
60
Cte dIvoire
62
61
24
Between 1% and 2%
30
18
Kenya
Between 2% and 3%
63
62
Between 3% and 4%
Malawi
67
66
Between 4% and 5%
37
14
13
26
19
Zimbabwe
84
82
Source: Economist Intelligence Unit
Greater than 5%
13
18
33
Into Africa
Institutional investor intentions to 2016
18
Agree
34
Neither agree nor disagree
34
Disagree
13
Strongly disagree
3
Source: Invest AD-EIU survey, August & September 2011
10
Into Africa
Institutional investor intentions to 2016
Select up to three.
(% of respondents)
Bribery and corruption
41
Weak legal and governmental institutions
40
Illiquidity in capital markets
36
Political risk
32
Lack of depth in capital markets
23
Weak corporate governance
23
Currency volatility
16
Poor regulation
13
Shortage of opportunities
13
Limited size of the market
12
Volatility of returns
11
Currency inconvertibility
11
Macroeconomic volatility
7
Lack of investment vehicles
5
Lack of financial understanding
among local population
3
Source: Invest AD-EIU survey, August & September 2011
Botswana
6.0
5.8
Mauritius
4.5
5.4
Namibia
5.4
4.4
Tunisia
5.3
4.3
Ghana
3.4
4.1
Malawi
3.2
3.4
Egypt
3.6
3.1
Zambia
2.6
3.0
Senegal
2.9
2.9
Tanzania
2.2
2.7
Uganda
1.9
2.5
Zimbabwe
2.9
2.4
Nigeria
1.0
2.4
Cote dIvoire
2.4
2.2
Kenya
2.0
2.1
Source: Transparency International
Into Africa
Institutional investor intentions to 2016
Institutional challenges
The mechanisms for conducting and
executing trades are one of Africas
greatest weaknesses, at least from an
investor perspective. In general, investors
rate the effectiveness of various key
measures of Africas capital markets poorly.
Only a handful considers issues such as
the security and efficiency of settlements,
In general, how would you rate the effectiveness of capital markets in frontier Africa across the following measures?
Please rate 1 to 5 where 1 is very effective and 5 is not at all effective.
(% of respondents)
1 Very
effective
Ability to conduct transactions across borders
Investor protection
20
12
Taxation system
15
17
32
23
10
3
38
30
32
21
35
31
18
Dont know
27
30
23
4
5 Not at
all effective
18
22
Transparency
31
15
29
33
31
8
8
8
15
25
6
31
4
14
11
12
Into Africa
Institutional investor intentions to 2016
79
83
Ghana
60
65
Egypt
54
60
Zambia
51
55
10
46
Kenya
52
51
49
51
35
Uganda
Rwanda
47
47
Nigeria
34
Financial services
34
Telecommunications
41
43
25
Angola
Manufacturing
31
22
39
Cte dIvoire
Consumer goods
36
37
21
Source: Ibrahim Index 2010
13
Into Africa
Institutional investor intentions to 2016
11
Higher volatility
Relative performance of emerging and frontier African stocks vs. world stocks
MSCI Emerging and Frontier Africa ex. South Africa Index
MSCI World Index
MSCI Asia-Pacific Index
MSCI Emerging Markets Index
180
160
140
120
100
80
60
40
20
0
2007
2008
2009
2010
2011
Source: Bloomberg
12
1 Strongly
agree
27
27
5 Strongly
disagree
49
25
18
18
34
45
34
34
13
30
13 3
16
12 1
28
38
18
34
27
18
22
8 1
61
14
Into Africa
Institutional investor intentions to 2016
13
39
High economic growth rates
35
High commodity prices
34
28
10
Favourable demographics
27
Ability to capture pricing and other market inefficiencies
22
Improved fiscal and monetary policies
14
Which of the following asset classes do you think offer the best opportunities for
investment in Africa?
Please select up to two for each column.
(% of respondents)
20
Improving capital markets infrastructure
18
Need for greater diversification
16
Reduced levels of bribery and corruption
15
Today
In three years
Commodities
Private equity
Infrastructure
15
20
Currencies
15
22
21
20
Other
38
29
Equities
Real estate
10
47
39
Fixed income
Agricultural potential
33
43
15
22
6
8
2
3
Source: Invest AD-EIU survey, August & September 2011
Into Africa
Institutional investor intentions to 2016
Which of the following vehicles do you think currently offer the best opportunities
through which to invest in African frontier markets, and which do you expect will
offer the best opportunities through which to invest in African frontier markets over
the next three years?
15
40
28
Structured products
27
27
Exchange-traded funds
30
22
14
20
Fixed-income funds
Other
30
35
22
20
1
1
Source: Invest AD-EIU survey, August & September 2011
16
Maturing corporates
and investors
Another factor that is helping boost
interest in equities has been a general
improvement in corporate governance,
with increased transparency, reporting
and dialogue between investors and
corporates. All interviewees talk of a
marked improvement.Ive been in Nigeria
for about three years now, and from what I
saw then and today, its chalk and cheese,
says Mr Pfende.As you started to get
to the tail end of 2006-07, more people
globally were investing in Nigeria and
they wanted information, so thats been a
push, and theres been progressively more
data provided.
Mr Pfende also notes other shifts,
such as more investor conferences to
discuss results; firms publishing regular
reports to their websites; and business
leaders holding investment road shows
both locally and abroad.All of that has
developed quite well over the past three
16
34
Agree
30
Neutral
28
Disagree
8
Strongly disagree
1
Source: Invest AD-EIU survey, August & September 2011
Into Africa
Institutional investor intentions to 2016
CASE STUDY:
17
Into Africa
Institutional investor intentions to 2016
17
51
Kenya
48
Zimbabwe
35
Egypt
34
Ghana
25
Libya
22
Zambia
18
Morocco
16
Angola
15
Sudan
15
Botswana
13
Tanzania
12
Uganda
11
Namibia
11
Mali
9
Tunisia
8
Algeria
8
Mozambique
7
Rwanda
6
Source: Invest AD-EIU survey, August & September 2011
Into Africa
Institutional investor intentions to 2016
nearly 8%.
Looking ahead, Rand Merchant Bank, a
South African bank, forecasts that four of
the five EAC countries (Tanzania, Uganda,
Kenya and Rwanda) now rank in the top
twelve most attractive African countries
for investment11. It is still early, but the civil
strife and economic instability that held
these countries back last century has been
replaced by sound monetary, fiscal and
macroeconomic policy, increasingly open
markets, and strengthening institutions.
They would well usher in another decade
of rapid growth.
3. Egyptwhere to next for North
Africas giant?
The dust is yet to settle following Egypts
political upheaval. After 30 years, the
regime of Hosni Mubarak has finally
ended, but this dramatic change has left
considerable political uncertainty, which
has caused the economy to stall. Real GDP
growth is expected to be just 1.2% in 2011.
As such, investors are clearly in wait and
see mode, but there is good reason for
optimism.
Egypt is the most populous Arab
country, with most of its 83m people
located in a concentrated geographical
area. While the country spans nearly
1m square kilometres of land, just 5% is
inhabited and cultivated. This makes it
a relatively accessible market for many
companies. Its location at the crossroads
of Europe, Africa and the Middle East also
makes it an important and influential
11
Into Africa
Institutional investor intentions to 2016
Conclusion
20
Appendix
Survey results
Into Africa
Institutional investor intentions to 2016
Hedge fund
8
Pension fund
6
Insurance fund
4
Endowment fund
1
Over the next three years, what change do you predict to the level of risk and return on your overall portfolio investments?
Please rate 1 to 5 where 1 is significant increase and 5 is significant decrease.
(% of respondents)
1 Significant
increase
Risk
Return
24
5 Significant
decrease
51
43
18 1
39
10 1
In which of the following frontier markets do you see the biggest opportunity?
Select the top two.
(% of respondents)
Africa (eg. Nigeria, Kenya)
66
21
Appendix
Survey results
Into Africa
Institutional investor intentions to 2016
What is your current overall allocation to assets in Africas frontier markets and what do you expect it to be in three
and five years time respectively?
(% of respondents)
Now
In 3 years time
Zero
21
7
30
18
Between 3% and 4%
Between 4% and 5%
1
24
Between 2% and 3%
In 5 years time
37
26
13
Greater than 5%
14
19
6
13
33
18
What do you consider to be the most attractive aspects of investing in African frontier markets?
Select up to three.
(% of respondents)
Emerging middle class and growing consumerism
39
Favourable demographics
27
Agricultural potential
15
22
Appendix
Survey results
Into Africa
Institutional investor intentions to 2016
What do you consider to be the main challenges of investing in African frontier markets?
Select up to three.
(% of respondents)
Bribery and corruption
41
Political risk
32
Currency volatility
16
Poor regulation
13
Shortage of opportunities
13
Volatility of returns
11
Currency inconvertibility
11
Macroeconomic volatility
7
Which of the following asset classes do you think offer the best opportunities for investment in Africa?
Please select up to two for each column.
(% of respondents)
Today
In three years
Commodities
38
29
Equities
22
21
Fixed income
20
Real estate
20
Currencies
23
47
39
Infrastructure
Other
33
43
Private equity
15
22
6
8
2
Appendix
Survey results
Into Africa
Institutional investor intentions to 2016
Which of the following vehicles do you think currently offer the best opportunities through which to invest in African frontier markets,
and which do you expect will offer the best opportunities through which to invest in African frontier markets over the next three years?
Please select up to two for each column.
(% of respondents)
Today
40
28
Structured products
27
27
Exchange-traded funds
30
22
14
20
Fixed-income funds
Other
30
35
22
20
1
In general, how would you rate the effectiveness of capital markets in frontier Africa across the following measures?
Please rate 1 to 5 where 1 is very effective and 5 is not at all effective.
(% of respondents)
1 Very
effective
Ability to conduct transactions across borders
Investor protection
20
Taxation system
12
27
7
23
30
10
3
38
30
35
31
18
29
33
17
8
8
32
21
15
Dont know
32
23
4
5 Not at
all effective
18
22
Transparency
31
15
15
25
31
4
14
31
11
27
27
24
1 Strongly
agree
5 Strongly
disagree
49
25
18
18
34
45
34
34
13
30
13 3
16
12 1
28
38
18
34
27
18
22
81
61
Appendix
Survey results
Into Africa
Institutional investor intentions to 2016
Which of the following African markets do you think offer the best
prospects overall for investment returns over the next three years?
Select up to five.
(% of respondents)
Nigeria
51
Kenya
46
48
Zimbabwe
35
35
Egypt
34
34
Financial services
Ghana
34
25
Telecommunications
Libya
25
22
Manufacturing
Zambia
22
18
Consumer goods
Morocco
21
16
Automotive
Angola
10
15
IT and technology
15
Sudan
10
Botswana
9
13
Tanzania
9
12
Uganda
8
11
Retailing
11
Chemicals
Namibia
Mali
4
9
Clean-tech
Tunisia
3
8
Professional services
Algeria
Mozambique
7
Rwanda
6
Gabon
Education
1
Government/Public sector
1
Mauritius
5
Malawi
4
Senegal
4
Cte d'Ivoire
3
Swaziland
3
Equatorial Guinea
2
Burkina Faso
1
Cameroon
1
Benin
1
Niger
1
Other
1
25
Appendix
Survey results
Into Africa
Institutional investor intentions to 2016
(% of respondents)
(% of respondents)
North America
30
23
Western Europe
United Kingdom
26
10
Asia-Pacific
South Africa
21
Singapore, Thailand
20
Eastern Europe
Latin America
US$100m or less
15
15
(% of respondents)
North America
25
Western Europe
24
17
Asia-Pacific
23
21
Eastern Europe
11
Latin America
Investment
75
United Kingdom
8
Financial control
34
Thailand
4
Investor relations
19
Deal origination
13
Canada, Egypt, France, Hong Kong, Indonesia, Netherlands, United Arab Emirates
2
Operations
11
Other
6
26
Appendix
Survey results
Into Africa
Institutional investor intentions to 2016
Principal/Partner
3
CFO/Finance director
19
Other C-level
8
Director/Vice president
14
Associate/Associate director
3
Portfolio manager
24
Other manager
2
Senior analyst
7
Other analyst
0
Other
1
27
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