Investment perceptions of Africa changing for the better

2010-10-12 09:20

The African continent was now being seen as presenting opportunities, Sunil Benimadhu, newly appointed president of the African Stock Exchange Association (Asea) and CEO of the Stock Exchange of Mauritius, said today.

“It has become clear that perceptions are changing,” Benimadhu said.

In the first six months of 2010, African regional funds attracted inflows of $484 million (R3.3 billion), and total investment fund allocation to Africa was a record $1.39 billion.

“With 80% of African exports consisting of oil, mineral and agricultural commodities, the resources of the continent have been Africa’s most attractive feature in bringing more investment to the continent from a number of countries,” said JSE director Geoff Rothschild, who has been elected Asea’s deputy president.

However, as a continent, Africa should be asking itself how it could take charge of increasing interest on all fronts, “not only from an acquisition perspective, but a portfolio investment perspective”.

Rothschild said that when attracting foreign investment, one should take into account avenues that benefited Africa not just in the short term but in the long term.

“We would be undermining our potential for growth if we did not do this.”

Both Benimadhu and Rothschild believed that the window for taking advantage of increased interest in Africa would not, however, last forever.

“Several markets in developed economies are currently unattractive to global investors due to low returns. In contrast, financial markets in Africa are showing promise.”

This, however, was an opportunity for a limited period, Benimadhu said.

“The factors that catalyse such investment are what our financial and political leaders should be considering as being of paramount importance.

“The time has come to make the required changes, rather than just talking about what needs to be done.”

Though the continent needed capital inflows to develop, institutional investors would only invest in markets they were comfortable with and that were liquid.

The JSE’s market capitalisation made up over two-thirds of the market capitalisation of the continent’s exchanges.

The combined trade on all African exchanges excluding the JSE was valued at less than $2.4 billion monthly, whereas trade on the JSE was valued at about $3.2 billion a month.

For obvious reasons, those countries that had supportive regulatory environments, strong financial markets and a zero tolerance for corruption would be popular choices among foreign investors.

“Several countries on the continent are tightening up regulation of the financial markets and the World Economic Forum recently announced that South Africa had the best regulated securities exchange in the world,” Rothschild said.

These developments should be seen as positive steps to encourage investment, but unless each country paid the same attention to regulation, these steps would only benefit a few on the continent.

According to Benimadhu, it was in this context that the new leadership team of Asea was focusing on seven defined areas that revolved around the betterment of Africa as a region.

The areas include Asea’s interaction with other key organisations, such as the World Federation of Exchanges and the New Partnership for Africa’s Development (Nepad), areas of operational importance such as trading, clearing and settlement developments, data capturing, distribution and use, as well as the identification and exploitation of market opportunities.

“Notably, the Mo Ibrahim index released on Monday confirmed the need to focus on one of the areas we had identified, namely the paucity of information/data about Africa.”

Benimadhu said investors could not be expected to invest if they did not have information to make decisions.

In the eyes of Asea’s new leadership, the key to sustaining interest in the continent’s investment opportunities would be to commit to an African vision that involved continued growth.

“There are 53 countries and 24 stock exchanges within the region. Every one has a role to play in making the African Dream a reality and a defined time in which to do it,” Rothschild said.

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