Debt capital markets across Africa’s sub-regions have remained robust despite the macroeconomic and political challenges presented, “indicating their growing maturity and depth - along with their ability to develop solutions in the face of volatility and change,” says Zoya Sisulu, Head, Debt Capital Markets South Africa, at Standard Bank.
Analysis & Strategy
The King (IV) Report on Corporate Governance for SA, 2016 (King IV) refers to certain “paradigm shifts in the corporate world”, including a shift from short-term capital markets to long-term, sustainable capital markets. The report also notes that the King Committee was requested by many entities outside the private sector to draft the King IV Report in such a way as to make it more easily applicable to all organisations: public and private, large and small, for- profit and not-for-profit. As a result, in order to make it easier for all organisations to use the King IV Report as a guide for good governance, King IV introduces “sector supplements” for the first time. Part 6.4 of the report is entitled “Supplement For Retirement Funds”, and it is applicable to all retirement funds, including pension funds, provident funds, preservation funds and retirement annuity funds, so that for the first time retirement fund governance is directly addressed by the King Committee.
Today the role of the custodian in Africa has evolved. This is especially evident in the way custodians are focusing on meeting both business and client needs to initiate and enable development of the continent’s capital markets.
The inaugural AGF Africa Service Providers Awards 2016 were held on October 27 at the gracious Rotunda in Camps Bay, Cape Town. Built in 1904, the iconic Rotunda ties The Bay Hotel to its Victorian roots. Once, the site of early-20th century high society gatherings, the historic venue accommodated Africa Global Funds’ guests for a Gala dinner and Awards ceremony.
Langelihle Mnyandu, Associate, (left) and Francisco Khoza, Partner and head of Banking & Finance, Bowmans, analyze the impact of the Solvency Assessment and Management (SAM) framework on private investment funds
As global economic changes give rise to new investment risks and opportunities, having the flexibility to allocate assets into new markets may be a more effective way to capture opportunities. The underlying structural weakness of the US and developed economies will result in an increasingly dominant role for emerging economies with strong financial balance sheets.
Fund managers face numerous challenges in today’s increasingly complex investing and operating environment. Operational issues, specifically when properly understood and managed, help efficiency. As managers consider the stakes for sustained growth, outsourced shadow-accounting as an extension of in-house operations provides access to an array of capabilities that are increasingly seen as critical to mid-sized and large hedge fund operations.
Hitherto, the bulk of funding deployed to finance Africa’s economic development has not been Sharia-compliant due to the requirement to pay interest to lenders. Periodically, the inability of governments to repay interest has eventually resulted in debt forgiveness by foreign banks. While Islam is a major religion on the continent, its communities have historically been underserved by banking systems and capital markets. Africa’s population is expected to double by 2050 to 1.9 billion, particularly in those countries with sizeable Islamic communities. This demographic growth should imply, therefore, a considerable increase in the demand for financial products satisfying Sharia principles.
The Africa Rising narrative from a few years ago has increasingly become an Africa is dead storyline. The negative image currently portrayed in the media is probably not completely without merit. The continent faces some tough challenges, from macro-economic headwinds resulting from lower commodity prices and a generally weaker external environment to a shortage of hard currency and weaker currencies. Furthermore, the drought in southern Africa regions is causing higher inflation and putting pressure on consumer discretionary incomes. Despite the persistent flow of negative news and the short-term deterioration of economic fundamentals, we believe there are a number of reasons to be optimistic about the longer term investment potential of Africa.
Over the years as international investors have searched for yield and found themselves looking towards Africa, many have invested with a long-term mindset focused on private and public equity strategies. Both strategies offer promising returns over the longer term, but the higher returns do not come without lack of liquidity and significant volatility.
Quite unexpectedly, the Panama Papers was raised at a recent society event I attended in Zimbabwe, and while the popular press has permeated even to the most unexpected areas – often without an accurate consideration of the facts – it made me think about how much is truly understood about the driving forces behind using offshore structures, and how alternative funds benefit Africa. Contrary to what one might read, using offshore structures extends well beyond tax neutrality considerations. This article considers the advantages of structuring through established and reputable offshore jurisdictions with a particular focus on the Cayman Islands.
Early this year, President Barack Obama signed into law the bipartisan Electrify Africa Act of 2015, essentially codifying the US President’s Power Africa Initiative that he began in 2013.
The South African Venture Capital (VC) industry shows an encouraging rise in the number of new fund managers, an increase in deal flow and in profitable exits, while deal size declines. The South African venture capital (VC) industry now represents almost R2bn in assets under management, with healthy confidence levels that are commensurate with reported rising deal activity, a pleasing exits record and a significant increase in VC fund managers and industry professionals.
Investors with a long term investment horizon may wish to consider investment opportunities in the development of commercial African real estate such as shopping malls, office blocks and warehouses. In frontier Africa (i.e. Africa outside of South Africa), new projects are typically delivered by developers at double digit yields (calculated as rent/total cost including land). And, importantly for international investors, these yields are in US dollars because rents in frontier Africa are normally paid in dollars or settled in local currency but referenced back to dollars. Applying leverage (we use a maximum of 60%), annual rental escalations of 3-4% and yield compression at time of exit, one can see that it is possible to achieve net compound investment returns in the high teens or more.