The interest rate risk of the All Bond Index has been systemically increasing over time. This is driven by persistently high fiscal deficits and the resultant issuance of longer term SA government debt. Many retirement fund investors use the All Bond Index (ALBI) as their benchmark for bond allocations. They should be conscious of the steadily rising volatility of bond returns and that such bond allocations are riskier than they have been historically. While the ALBI has been used as a proxy to match pension funds’ liabilities, the ALBI itself has probably grown more volatile than pensioner liabilities.
Analysis & Strategy
The Global Impact Investing Network defines impact investments as investments which are made into companies, organisations and funds with the intention to generate social and environmental impact alongside a financial return. It highlights that impact investment has attracted a wide variety of investors, both individual and institutional, and that it is taking place all over the world and across all asset classes.
As far as legal and regulatory developments in Nigeria’s private equity industry goes, it appears that the dots are finally beginning to connect, writes Olubunmi Abayomi-Olukunle, Lead Transaction Counsel at Balogun Harold
African bankers are positive about the growth of trade finance, although considerable obstacles stand in the way of the continent reaching its full potential, explains Doina Buruiana, Project Manager at the ICC Banking Commission
There are many misconceptions about Africa and African investing. One of the more common remarks we hear when introducing Africa to potential investors is, “I know, this is a high-risk investment with a high potential return”. If we use the MSCI index for Africa excluding South Africa and compare the returns and volatility of this index to a range of other global indices, we can see that this is simply not true. The graph below shows US dollar data from June 2, 2002 (earliest available for Africa ex-South Africa) to April 30, 2018.
Domestic equity markets followed global markets higher as trade tensions between the US and China eased somewhat and investors’ attention shifted towards a robust Q1 earnings reporting cycle abroad. The US Dollar strengthened on the back of higher interest rate expectations and weaker European data. This resulted in a lower rand and higher SA bond yields. The domestic equity market benefited from a weaker rand and a sharp rebound in mining shares as the High Court granted a declaratory order on “once empowered always empowered” thereby removing uncertainty on the ownership of existing mining rights. The spike in the oil price due to increased geopolitical tensions in the Middle East, strong underlying demand and disciplined output from OPEC and Russia further supported the performance of the sector during the month. But it wasn’t just the JSE Resources sector that performed well. Even though headline inflation in South Africa fell further due mainly to lower food prices, domestic bond yields moved much higher in sympathy with higher developed market yields where inflationary pressures are mounting. Market euphoria over South Africa’s leadership transition has abated as the year has progressed. Although policy uncertainty with regards to land ownership and the Mining Charter remains, investors should not lose sight of the recent positive changes implemented by president Ramaphosa. In addition to the High Court’s declaratory order relating to ownership of existing mining rights (which will be challenged by government), several other actions were taken during the month, including the appointment of a new Chairperson and Interim board at Denel and the appointment of an Economic Advisory Council with an investment team to help raise over $100bn over the next five years. Furthermore, minister Radebe signed a R56bn contract with renewable energy producers. The steps taken so far to stabilise state-owned enterprises (SOEs), with the objective of returning them to financial sustainability, are starting to yield positive outcomes. A few months ago, capital markets were completely shut to the SOEs, but now funders have become more comfortable and SOEs have been able to refinance maturing debt. This is critical not only for the certainty of medium-term service delivery, but also for the reduction of the immediate threat to government finances. The task ahead is still enormous for Public Enterprises Minister Pravin Gordhan, but some success spells good news for industries supplying the various SOEs as well as those consuming their services. Consumer and Business confidence has returned, which bodes well for an acceleration in economic activity towards the latter part of this year as companies start the process of rebuilding depleted inventory from an improvement in final demand. The latest confidence survey compiled by the Bureau for Economic Research (BER) highlighted that one of the inputs in measuring confidence, the “Political Constraints to Business” index, has fallen to a two-year low. At the same time, there has been a sharp recovery in intended investment in machinery and equipment, which provides further evidence that the economy is one step closer to the start of the next investment spending cycle.
Africa’s fragmented markets and lack of legacy foreign exchange trading infrastructure means that the continent has become a melting pot of fintech activity and innovation, writes Tim Hutchinson, Head of Digital for Financial Markets, Standard Bank
The top ten economies by Gross Domestic Product (GDP) in Africa, including Egypt, Algeria, South Africa, Morocco, Ethiopia, Kenya and Tanzania, all have active competition regulation, save for Angola and Nigeria. These two countries are in the process of establishing completion law regimes, which are expected to be up and running soon. About 20 countries currently have functional competition law regimes, several more have enacted legislation but have no enforcement structures in place and around 18 countries in Africa currently have no competition legislation.
In the last ten years various African countries have gone through difficulties relating to politics, falling commodity prices, currency problems and economic mismanagement. The downside risk has been significant in countries like South Africa, Nigeria and Egypt. However the biggest threats have been dismantled by positive actions or favorable global developments. So the economic outlook for Africa appears much better than it has been for a long time.
More than 90% of the capital raised by Private Equity comes from outside the continent, yet the value is created in the dusty, bustling markets of Africa. Doesn’t Private Equity in Africa similarly run the risk of become insulated from groundswells at the bottom of the pyramid – i.e. the consumers upon whom their investments depend? After all, most GP professionals learnt their skills in the investment banks of Johannesburg, Europe or New York. How do GP’s resident in the global capital markets of the world remain in touch with the reality of African markets?
Global financial markets have become extremely skittish about the prospect of a global trade war. The main protagonists are the world’s two largest economies, namely the United States and China. The populist base that helped President Trump get elected is largely viewed as the losers in the globalised world that crystallised after the World Trade Organisation’s founding in 1993. Meanwhile, the United Kingdom’s European Union (EU) membership referendum outcome in June 2016 reflected dissatisfaction by some constituents about the benefits of free trade and labour mobility within the EU. Thus, the gains of free trade in the developed world have been seriously questioned. It is, therefore, somewhat supremely ironic that the leaders of forty four African countries recently signed an agreement to create a free trade bloc, known as the African Continental Free Trade Area (ACFTA). There were high hopes amongst signatories of fast track implementation, possibly within six months, after being ratified by national parliaments. There are, however, two important omissions in initial membership, notably Nigeria and South Africa.
While 2017 only saw a trickle of divestments, some private equity firms nevertheless managed impressive sell-offs during the period. What is the outlook for exits in the coming months?
What contribution can Private Equity make to the financing of infrastructure in Africa? The issue was brought into sharp focus at the recent SuperReturn Africa Conference in Cape Town, South Africa, which brought together a number of experts to consider the current challenges and potential solutions. The scale of the task is immense, with World Bank research from 2017 highlighting that Africa’s urban population - which now estimated at 472 million people - may double over the next 25 years, and that $93bn may be needed to close the infrastructure investment gap. Securing the right infrastructure investment will clearly be vital in translating rapid urbanisation into sustainable economic development on the African continent.
Investment in emerging and frontier economies has been a major theme of the past two decades, writes Chris Becker, Economist, Investec Bank