THE SCRAMBLE FOR AFRICA ; Business Analysis ++ an Economic Revolution Driven by Booming Global Demand for Commodities Means Africa Is No Longer a No-Go Area for Foreign Businesses. as a Result, Countries Such as Nigeria Are Attracting Interest. by Rob Griffin
Griffin, Rob, The Independent (London, England)
For many years, large parts of Africa have been virtual no-go areas for foreign businesses with poor corporate governance, unreliable economies and political unrest deterring all but the most committed investors.
This is no longer the case. An economic revolution driven by the booming global demand for commodities over the past few years means the corporate world can no longer afford to ignore fast developing nations such as Nigeria, Botswana and Ghana.
Soaring stock markets, stable economies and decent levels of overseas investment have certainly improved the fortunes of many countries, which have been able to use part of their newfound wealth to fund internal consumer booms of their own.
Perceptions of sub-Saharan Africa have certainly shifted, says Innes Meek, director of CDC Group, a government-owned fund of funds investor which has around [pound]2bn worth of assets in the world's poorest countries.
"South Africa has always been a magnet for business but other economies are now attracting interest," he says. "Nigeria, for example, has a substantial economy, backed by oil, and a large population which provides opportunities for businesses to grow."
According to Bryan Collings, managing director of Hexam Capital Partners, there are a number of reasons behind the turnaround in fortunes.
"A lot of politically stable countries endowed with resources such as oil and commodities have succeeded in strengthening their reserves, stabilising interest rates and providing a much better environment in which to operate," he says. "They have also benefited from the development of capital markets in the region."
Plenty of investment cash looking for a home has also been a driver. Not only has there been an abundance of private equity cash around, but prudent businesses that were cautious during the stock market downturn now have cash to invest.
"We've had greater liquidity over the past five years, as well as cheaper money and a reduction in risk aversion," says Mr Collings. "This means money has found its way into new markets and Africa has definitely been a beneficiary of these moves." In addition, the fast developing sub-Saharan nations are looking attractive on a relative basis. "Fifteen years ago, places like Brazil and Mexico were still developing so money was being allocated to those markets rather than Africa," he adds. "As these places, as well as the likes of Poland and Hungary, have started maturing and have seen the levels of competition increase, so investors have started to look elsewhere."
This upbeat assessment is reflected in the performance of the sub- Saharan stock markets, which outperformed the likes of South Africa during the first six months of this year.
Sub-Saharan Africa - excluding South Africa - rose by an impressive 38.2 per cent and were not affected by either the March correction, which hit a number of rival emerging markets, or the Nigerian presidential elections a month later. This compares with a relatively modest 10.2 per cent rise for the MSCI Far East index and a fall of 5.5 per cent in the MSCI Eastern Europe.
There is certainly the potential to enjoy rich rewards from investing in Africa, adds Mr Meek at CDC. The combination of rapid development potential and the vast populations means that well-run companies can deliver fantastic returns.
"If you can score a hit in Africa, it can turn out to be a good one," he says. "We were early investors into Celtel [the pan- African telephone business] and that turned out to be a terrific investment as we made five times our money." But that's not to say that sub-Saharan Africa is a panacea, points out James Thomson, manager of the Rathbone Global Opportunities Fund. There are still plenty of reasons why businesses and investors should approach these countries with extreme caution. "I am wary of investing in Africa for a number of reasons," he explains. …