The fundraising environment in the Southern African region remained rather challenging in 2018, mainly due to the economic and political environment. This resulted in the decrease in the amount of capital raised by the industry.
Analysis & Strategy
2018 saw a continuation of what has become a consistent theme of improvement in Africa’s capital markets, writes Hari Chaitanya, Head Investor Services Product Management, Transactional Products and Services, Standard Bank.
The exit environment for African private equity is much more robust and active than many realise. There is an active market both for selling and buying of assets and interests, according to Paul Boynton, CEO of Old Mutual Alternative Investments. “There are a growing number of exit routes across different sectors and countries, not just in the more mature South African market, he says.
In which markets and sectors do you see the best investment opportunities for equity investors in 2019?
Trade has driven much of Africa’s economic growth in recent decades. Yet a sizeable trade finance gap is restricting growth for SMEs. Chris Ash, Managing Director at ExWorks Capital, explains why only innovative finance can solve this impasse.
More than half the world’s fastest-growing economies since 2000 have been in Africa. Future growth projections suggest that by 2030 Africa will be home to 1.7 billion people, 43% of whom will belong to the upper or middle classes.
Sven RIchter, Fund Manager at Drakens Capital Fund Managers, looks at China’s One Belt One Road Initiative and what it means for Africa
The need for energy and the case for investing in energy in the region has generally been well documented. The Southern Africa Community Development (SADC) secretariat’s Regional Infrastructure Development Plan estimates that only 5% of rural areas in the region have any access to electricity. The southern African region as a whole has low access to electricity of about 42 percent compared to around 36 percent for the East African Community and 44 percent for the Economic Community of West African States.
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.
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.