Investing in Africa: The Outlook for Growth

The future of Africa’s capital markets is bright because many of the 16 stock exchanges serving 23 countries are turning to standardized trading platforms that allow integration into major platforms, said Thomas Mims, CEO of Emerging Africa Ltd.

“We are hoping to see more privatizations placed onto the capital markets,” Mims said during a panel at the inaugural African Business Symposium, sponsored by the student-led Chicago Africa Business Group, at Harper Center on April 17. The panel was moderated by Jacques Kibambe Ngoie, senior economist consultant at Primson Management.

The total market capitalization for all of Africa has grown from about $250 billion in 2003 to more than $1 trillion today, Mims said. “That trend is not going to abate, even though there was a slowdown,” he said. “We ran an index of 46 African stocks traded in Egypt, Morocco, Nigeria, Kenya, and Mauritius that rose 45 percent during 2007.”

For African countries to attract capital, said Rotimi Sekoni, managing partner at Cloudleap Partners, their governments must:

• Implement current and nascent reform programs promulgated by central banks. “We are starting to see some of these reforms,” Sekoni said.
• Demonstrate at the federal level that they will better spend their money. “Serve the greater good,” he said. “Build roads, bridges, hospitals, and schools.”
• Operate with more regulatory and legislative stability. “In Nigeria, tariffs change overnight,” Sekoni said. “In one case, they were cut 75 percent to allow Chinese exports, driving a local company with 1,000 employees to Ghana.”

“There was some political uproar in Nigeria and now those tariffs are back up to the original level,” he said. “This behavior is silly. We can’t invest in an environment where laws and regulations change so willy-nilly. We need stability. If you’re going to be bad, be bad all the time. We can price that in.”

Ecobank looks for three characteristics in the countries in which it invests, said Arnold Ekpe, group CEO of the company. Those include:

• Good macroeconomics. “The authorities have to take appropriate steps to make sure they’ve got fiscal discipline, that interest rates and deficits are not too high,” Ekpe said.
• Political stability. “We sometimes take it for granted, but it can lead to the political volatility [Sekoni] mentioned,” he said.
• Good attitude toward business. “You can’t imagine how hostile governments sometimes are towards business,” Ekpe said. “It’s not necessarily overt hostility, but sometimes things just don’t get done.”

Africa is badly in need of more private equity financing, said Kunbi Oguneye, ’02, CEO of Suburban Telecom. In Nigeria, banks are the primary source of financing, but they don’t provide the right model for the development of business infrastructure, Oguneye said. Meanwhile, too much of the private equity from the United States and Western Europe is “hot money,” he said.

“They seem to have the ability to really run before everybody else,” Oguneye said. “They seem to be able to get information that disaster is coming. Then they’re gone, and they push the market in different directions. Those of us trying to get capital would like the opportunity to get some of the private equity that sits on the sidelines. There is ton of money on the sidelines, but the investors have to understand Africa and its cultural dynamics before coming in.”

The key panel discussion clearly showed that Africa is definitely ready and eager to move forward, said Michaelle Gocko, a first-year student in the Full-Time MBA Program, who co-chairs the Chicago Africa Business Group. “I see a lot of opportunities,” Gocko said. “Most of the challenges we talk about in Africa already exist in other countries such as India, China, Brazil, and even Iraq. Africa has a lot of assets that are ready and on the way to being linked throughout the continent.”

—Phil Rockrohr