Africa – it’s AIDS-ravaged and conflict-ridden and in many countries people are worse off now than they were 40 years ago. In Zimbabwe life expectancy has collapsed from 70 to 35. The fastest growing economy between 1998 and 2002 was Liberia (up 15%) – not hard to achieve from a starting point reduced to virtually zero by war and civil strife.
But recently Africa’s reputation has been seeing a bit of a renaissance. For every newspaper headline reporting disaster in one country, there is talk of a stronger economy and more stable political environment in others. Will Africa’s vast stores of raw materials and undoubted promise finally get on to Wall Street’s radar screen?
For Stanley Fischer, president of Citigroup International and deputy chairman of Citigroup, the continent has a special pull: he was born there. Freshly back from a trip to Tanzania and South Africa in the company of Citigroup chairman Sandy Weill, he is far from downbeat about the continent’s prospects.
“It’s a place where we are doing business, and anxious to do more business,” he says. In Africa that means mostly servicing the needs of global clients and multinationals, as opposed to consumer business. “As we re-organised Citigroup and set up Citigroup International, we took a hard look at everything. We’ve been looking through whether those franchises make sense and the answer is they do – and that’s why we’re still there. So we’re there, we plan on being there, we’re looking for business opportunities, and we’re serious about looking for them,” he says.
Positive about progress
To illustrate Africa’s export potential, Mr Fischer talks about Russian transport planes taking fish to market in Europe from Lake Victoria. Technology changes are making the vast continent smaller. “I am happy to report that cell phones work in the Serengeti,” he tells an audience attending a conference on capital flows to Africa taking place on the top floor of Citigroup’s head office in New York.
Though Citigroup does business in more than 35 African countries, it’s the success of South Africa (the continent’s largest economy by far) since the end of apartheid that is of critical significance, according to Mr Fischer. “We’re particularly watching what’s been happening in South Africa – they are building up an impressive record of stability, both political and economic, and it’s something that we’ll keep on watching and seeing whether there are more opportunities to do business there,” he says.
All of the BMW 300 series and all right-hand drive Mercedes in the world are made in South Africa, he points out. “There’s a lot happening and it’s not getting a great deal of attention,” Mr Fischer says. He is also big on the knock-on effects of the success in South Africa on neighboring countries, such as Mozambique – which is also achieving sound growth through good economic policies. “I think what’shappening in Mozambique is really worthy of attention – and the fact that Botswana has run itself so well for so long,” he says.
Chasing ratings
Though ,with the exception of South Africa, Africa’s stock markets are too small to be of interest to portfolio managers they were among the best-performing in the world last year. There is also an initiative afoot to give African countries more of a presence in the international bond markets by getting them the sine qua non of any bond issue: a credit rating. In a symptom of Africa’s non-existence on the world financial stage previously only three out of 55 countries had ratings. That is set to change thanks to the United Nations Development Program – an initiative championed by UN secretary-general Kofi Annan– which is sponsoring a number of countries to get rated.
Mr Fischer, who was formerly deputy managing director of the IMF and so has had significant hands-on experience, sees the rating process as a definite plus, especially in terms of getting a good macroeconomic framework in place. “It provides information on the outside. [But] it also means, on the inside, that policymakers begin to pay attention to that. I’ve noticed in quite a few countries that once they focus on it, it tends to concentrate their minds on getting things done that will strengthen the rating.”
So far Ghana, Cameroon and Benin have had UN-sponsored ratings (though none made investment grade), Burkina Faso and Madagascar are set to follow.
Fear of collapse
Still, in the varied mosaic of countries that make up Africa, for every bit of progress there’s always a setback. Zimbabwe, such a beacon of light in the decade after independence, has become a basket case. “We used to have a business in Zimbabwe, we don’t anymore,” Mr Fischer says. “The destruction of that economy is one of the really sad things that has happened – if you read things about hunger there, you’re just sickened.”
And the fear is always that other countries, like South Africa, even if successful for a while, might end up going the same way. Investors, especially banks, are risk averse. As Mr Fischer explains: “You’re not going to get investment in the main parts of the economy if you don’t have some assurance of stability of the overall framework for foreign investors. I knew that as a theoretical matter when I worked at the IMF and when I was at MIT. I now discuss it on a daily basis inside Citigroup. And believe me, you keep asking that question: Are we going into another crisis? Will we suffer another Argentina? If so ‘Bye-bye!’ – it’s that straightforward.”
Gains to be made
Yet Mr Fischer is optimistic about the continent’s prospects. “There is much to be done – but there are enormous gains to be made. When I think of Africa and I think of the pessimism – I remember Latin America in the 1980s: debt-ridden, crisis-ridden, military governments everywhere. It was the lost decade, no signs of life, but it began to change. And the 1990s weren’t that much better. But when you look at it the changes have been profound. The process of change is getting underway in many African countries now. So I think there’s prospects for a much brighter period of economic growth.”
But does Mr Fischer, who lived in Zambia until he left for England at the age of 18, take Africa more seriously as a result of being from there? His reply leaves room for speculation: “Now then. You’ve put me in an awkward spot. I have to tell my colleagues I don’t.”
Sorting out the stock markets
When are sky-rocketing stock markets not enough to get investors excited?
Perhaps only in one circumstance: when those markets are too small and illiquid for portfolio managers to participate in the stellar rises.
With the exception of South Africa, that is the problem with most of Africa’s stocks markets. They may have been among the world’s top performers for the past eight years – but that is not going to be enough to involve foreign investors, who still put the bulk of their money into Africa in the form of private equity. They are urging consolidation of Africa’s 21 exchanges (many of which have only a handful of stocks listed) and hope to see more large-scale privatisations taking place to give markets depth.
None is a more active proponent of the African stock market cause than Ndi Okereke-Onyiuke, head of the African Stock Exchanges Association and director general of the Nigeria Stock Exchange.
She is trying to put pressure on the Nigerian government to get oil exploration companies listed on the country’s stock exchange: their massive assets would greatly boost the size of the market. “If we have such companies listed our market capitalisation will be much bigger and foreign investors will not say ‘I have nothing to buy – those companies are too small’,” she says in an interview.
She also argues that with the listing of Nigeria’s telecommunications company, NITEL, expected soon, market cap will shoot up – especially if it is followed by the privatisation of Nigeria’s National Electric Power Authority. “These are really the big issues, what I call the flagship issues,” she says. “Once we have at least one of those, there will be enough for foreign investors to buy.”
But she’s not quite as upbeat about consolidating Africa’s disparate exchanges. “Individual African countries have to first develop the culture of having a stock market,” she argues. “You cannot merge what does not exist.”
Still, the long-term goal is just that. The work has already started, with two South African companies listed in Nigeria and, she hopes, Nigeria’s NITEL to be listed in Johannesburg, very soon. According to Onyiuke, if Nigeria leads the merger of West African stock markets; South Africa the merger of southern African stock markets, Nairobi and Tunisia the merger of eastern and northern African stock markets respectively: “at the end of the day we will have four strong regional stock exchanges in Africa and, then, we will work towards eventually merging all of them into one big African stock exchange.”
Foreign equity investors will look forward to it. At present many complain that it is not that they don’t want to invest in Africa: it’s that they can’t find anywhere to put their money.
