Suzanne Miller looks at efforts by African financial leaders to promote international capital investment.
Ndi Okereke-Onyiuke, chief financial officer of the Nigerian Stock Exchange and chairman of the African Stock Exchanges Association, recently sat sipping a drink in the lounge of the New York Helmsley Palace Hotel to soothe a raspy voice.
The laryngitis, she surmised, was from staying up all night to finalise paper work for Nigeria’s biggest privatisation yet, Nigerian Telecommunications (NITEL), just before hopping on a New York-bound plane.
That was in April, when she and a delegation of African stock exchange chiefs and finance ministers whirled through New York City on their first roadshow to promote capital investing in Africa.
It’s easy to understand why the energetic Dr Okereke-Onyiuke was keen to get the NITEL paperwork done before touching down in New York, where she threw a party at the Helmsley Palace days later to showcase the forthcoming privatisation.
Nigeria’s telecom coup
The government is selling a 20% stake that she says will be worth roughly $3bn – half the size of the entire Nigerian Stock Exchange’s $6bn market cap last year. That will constitute an enormous selling feat for a market that is so thinly capitalised. Still, Dr Okereke-Onyiuke is hoping this will herald other big listings on Nigeria’s stock exchange, and says the electricity sector is next in line.
Over the past year, Africa’s stock markets have been throwing off some of the world’s biggest returns. Last year, South Africa churned out 30% returns measured in US currency while Ghana churned out 33.3%.
Botswana threw off 41.4%, Nigeria 7.6%, and Mauritius 31%. On the other hand, Britain’s FTSE-100 index posted a loss of 14.2% and the US S&P 500 shed 22.4%, according to the United Nations Development Program (UNDP), which hosted the New York roadshow.
There are 16 stock exchanges among Africa’s 53 countries, which had a total market capitalisation of $226bn at the end of 2002, according to UNDP.
More than half that market cap is comprised of South Africa’s $182bn. Still, Africa’s exchanges are tiny compared with Western counterparts. Botswana, the exchange with the impressive 41.4% returns, had a market cap of just $1bn in 2002 while Ghana, another big performer, had just $382m in market cap.
“We’re not talking about voodoo economics here,” Dr Okereke-Onyiuke good-humouredly chided her audience. “How much more can IBM grow? Most companies quoted in Africa are still in expansion stage. Many of us make over 200% on our investments.”
These kind of returns also suggest just how illiquid the markets there remain – something that has so far scared more than attracted foreign investors.
Yaw Osafo-Maafo, Ghana’s finance minister, put it bluntly: “Is Africa ready for portfolio investment? This is like asking a starving man if he’s ready for food.”
Just look at the numbers: Africa, he said, had a combined GDP of $590bn in 2000 – about 1.8 % of the world total. Yet Africa – comprised of 53 countries, 100 cities and 800 million people – gets less than 2.3% of global trade flows and less than 2% of global capital flows (foreign direct investment of $9.1bn 2001 and $9.6bn in 2002).
That’s up substantially from $2.3bn in 1990 – but still paltry compared with other parts of the world. Africa’s share of global FDI flows in 2001 was just 1.2%, and just 2% of total FDI into all developing countries, Mr Osafo-Maafo said. Moreover, the money was concentrated in just five countries: Angola, Egypt, Nigeria, South Africa and Morocco.
These sorts of figures have deeply frustrated African’s capital market chieftains, who say they’re hurt by media images focusing on widespread poverty and civil strife in pockets of the continent.
“Africa is often seen as one big, poor village. Sometimes people think that Ghana is a town in Nigeria. This is the predicament Africa finds itself in,” Mr. Osafo-Maafo told the audience.
Steps to integration
Countries such as Ghana are taking steps to integrate more fully with the international market place. For instance, the finance minister said by the third quarter of this year his government debt will be rated by an international credit agency. “It’s better to be rated and rated low than have no rating at all,” he explained.
Since the second half of last year, four African countries have received ratings from Fitch and Standard & Poor’s. The UNDP is funding the due-diligence for all countries seeking a rating.
In an interview with The Banker, Mr Osafo-Maafo said his government is looking for ways to generate much-needed funding at home.
For instance, he’s currently laying the groundwork for the country’s first-ever municipal bond market. Three cities will issue bonds, including Kumasi and Takoradi. The issues will have 10-20 year maturities and, importantly, will be guaranteed by the government. This would place Ghana in the vanguard of African nations that are developing a municipal bond market.
Banking reforms
Few outside South Africa have made such strides to date. “Economic development cannot be sustained without liquidity,” Mr Osafo-Maafo said in the interview. Nor can it be sustained, he reasoned, if Africa’s economies aren’t aligned with international standards.
To that end, a number of reforms were passed around February aimed at strengthening the banking system and improving transparency. In February the national Securities and Exchange Commission revised its 1995 laws to improve transparency of the stock markets. Among other things, brokers will have to be centrally registered.
Mr Osafo-Maafo also said in the interview that the country’s 18 banks will be forced to hike their mandatory equity base from $250,000 to $5m.
Although some will get a break depending on their charters, “most won’t make it,” he said. The number of banks will likely shrink to seven, he added.
When asked about progress in attracting consumer deposits, he said Ghana’s bank deposits have grown 23% over the past two years, though this remains a big problem because of corruption concerns. “There’s a lot of money outside the banking system,” he said.
Indeed, one investor attending the conference said there is anywhere from $5bn to $600bn of African assets managed outside the country in Europe and the US, for the wealthy who want a safe harbour for their money.
Potential US market
There’s also a big investing potential among some of the estimated 30 million African Americans who reside in the US. “They’re an increasing power base in the US, who haven’t been willing to invest in Africa. We’re talking about serious money,” another investor, speaking from the audience, said.
Mr Osafo-Maafo and his peers would clearly love to tap all that elusive Western capital. “The lack of capital is a big stumbling block. We need strong marketing tools to tell the world Africa is on the move,” the Ghana minister told the crowd.
And Dr Okereke-Onyiuke is clearly eager to hit the road again – laryngitis or not – and drive this message home. When asked what she most hopes for in the year ahead, she instantly replied: “To repeat in Europe what we did in New York these last two days.”
It turns out that may be simple enough, as French insurer AXA has already extended a tentative invitation to host the next Africa road show in Paris next year. However, that’s the easy part. The monumental achievement will be if they can convert roadshow charisma into hard capital.
