Western companies look to Africa for investments

27 October 2014

Despite the Ebola virus threat in West Africa, there is growing appetite from Western investors for Africa’s markets which promise high returns.

Western investors, facing sluggish growth at home, are hoping the continent’s budding markets can help them tap into Africa’s “frontier markets’. Frontier markets, also known as “pre-emerging markets’, are countries with investable stock markets that are less established than those in the emerging markets.

This despite the Ebola epidemic which is threatening the economies of not only the three worst affected countries – Guinea, Liberia and Sierra Leone – but the rest of the region.

Speaking to Agence France-Presse (AFP) Hubert Segain, a partner at international law firm Herbert Smith Freehills, said Africa has lots of opportunities for fast growth. “The Americans are beginning to look, the whole world is looking, because it’s the last big territory with a lot of opportunities for growth,’ he said.

The International Monetary Fund (IMF) predicts despite the heavy economic toll from the Ebola epidemic, sub-Saharan Africa’s economy will expand 5.1% in 2014 and 5.8% in 2015 — the highest growth outside Asia.

New appetite for African investments

The new appetite for African investments has seen countries across the continent set up stock exchanges, with Mozambique, Uganda and Tanzania being the latest countries to establishing their own markets. The stock exchanges, often governed by more defined rules than private investments, offer African companies a stable and transparent environment to access Western capital.

Western stock exchanges are beginning to link with African stock exchanges, encouraging companies to double-list. Segain said more than 10 African companies, or those with assets in Africa, recently listed for the first time on the London Stock Exchange, regarded as one of the world’s largest equity markets.

France’s Euronext Paris also recently signed a cooperation agreement deal with Algeria’s stock exchange and also agreed to provide Tunisia and three Middle Eastern exchanges with trading technology.

Companies face challenges to double-list

Anthony Attia, CE of Euronext Paris, said the exchange operator is looking into double-listing. However, the potential for making profit comes with many challenges.

“The first hurdle is seeing Africa as a single entity. It brings together very different geographical areas with varied levels of political and economic stability,” said Attia, adding that liquidity also presents hurdles since there is a limited number of players in Africa’s financial markets.

The BRVM exchange based in Cote d’Ivoire, which covers eight West African countries, already gets more than half of its volume from international investors, according to its CE Edoh Kossi Amenounve.

BRVM was set up in 1998 and has only 37 companies from eight countries listed. Amenounve believes it will take another five or six years for it to reach a decent size.

South Africa has by far the most developed market on the continent, with about 400 companies listed, followed by Egypt and Nigeria, both with about half of that, according to Segain. The Johannesburg Stock Exchange is also far and away the largest by market capitalisation, with US$37-million, more than four times as much as its nearest rival Nigeria.

SAinfo reporter

 

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