Turning African dreams into reality – limited opportunity

“It has become clear that perceptions are changing. The African continent is now being seen as presenting opportunities,” says Sunil Benimadhu, newly appointed President of the African Stock Exchanges Association (ASEA – www.africansea.org) and CEO of the Stock Exchange of Mauritius (www.stockexchangeofmauritius.com).
Growing excitement about investing in Africa can be seen from the net inflows of investment funds. According to a press release issued on behalf of ASEA, citing investment research firm EPFR, in the first 6 months of 2010, African regional funds attracted inflows of $484 million, and total investment fund allocation to Africa was a record $1.39 billion.
ASEA, comprised of 20 exchanges in 27 African countries, aims to foster financial integration on the continent to mobilise capital to accelerate economic development of Africa. It will hold its 14th conference in Livingstone, Zambia, on 11-12 November.
Geoff Rothschild, a director of South Africa’s JSE Ltd (www.jse.co.za) securities exchange who has been elected ASEA’s Deputy President, adds: “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. However as a continent, we should be asking ourselves how we can take charge of increasing interest on all fronts, not only from an acquisition perspective but also a portfolio investment perspective. Attracting foreign investment should take into account avenues that benefit Africa not just in the short but in the long term also. We would be undermining our potential for growth if we did not do this.”
Both Benimadhu and Rothschild believe that the window for taking advantage of increased interest in Africa won’t last forever. Benimadhu says: “Several markets in developed economies are currently unattractive to global investors due to low returns. In contrast, financial markets in Africa are showing promise. However this is an opportunity for a limited period.
“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 demonstrate through making the required changes rather than continue to talk about what needs to be done.”
Institutional investors will only invest in markets they are comfortable with and that are liquid, says the press release, noting that the market capitalisation of South Africa’s JSE Ltd securities exchange (www.jse.co.za) makes up over two thirds of the market capitalisation of the African exchanges. It quotes Nedbank Capital’s Nerina Visser as saying the combined trade on all African exchanges excluding the JSE is US$2.4bn monthly, while the JSE trades securities worth about $3.2bn each month.
The press release also notes that investors seek out countries that have “supportive regulatory environments, strong financial markets and a zero tolerance for corruption” and notes that several countries are tightening up regulation of the financial markets. As the pinnacle achievement, the World Economic Forum recently ranked South Africa 1st worldwide out of 139 countries for the regulation of its securities exchange. The Financial Services Commission Mauritius was awarded an award for “Most Innovative Capital Market Regulator of the Year” at a recent Africa investor award ceremony in New York.
Benimadhu says the new ASEA leadership team is focusing on 7 defined areas that revolve around the betterment of Africa as a region, including: ASEA’s interaction with other key organisations such as the World Federation of Exchanges and the African Union’s Nepad programme, as well as 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.
Benimadhu said: “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. How can we expect investors – whether local or international – to invest if they don’t have information with which to make decisions? The same is true for issuers.”

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