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View the article online at http://citywire.co.uk/wealth-manager/article/a647049

Investors turn to Africa as the final frontier

by James Smith on Dec 28, 2012 at 07:00

Apart from Nigeria, he also foresees an exciting future for
Ghana, which enjoyed 14% growth in 2011. ‘The country has abundant natural resources, including timber, oil, silver and manganese, as well as cocoa and gold.

‘Furthermore, Ghana’s foreign reserves have been increasing, doubling to $5.6 billion between 2008-11, while inflation has fallen to single-digit levels. It appears the government has fostered a tight fiscal policy and budget discipline, which, combined with high cocoa prices, have made a positive impact on the economy.

‘Finally, Ghana’s stock exchange benefits from its proximity to Nigeria and the Ivory Coast, which simplifies co-operation between the exchanges and helps to improve liquidity.’

Africa’s growing economic strength is not only clear from equity markets, with its local currency debt universe also growing rapidly. Among EM debt specialists, Investec currently flags up opportunities in Nigeria, which has just made its official entry into the local currency bond universe.

Like many equity peers, the Investec team, led by Peter Eerdmans, is attracted by Nigeria’s macro growth story as one of the world’s fastest-growing economies. ‘Nigeria, with its very strong economic growth record and sizeable economy, has been on the radar screen of frontier investors for several years now,’ says Eerdmans.

‘Indeed, the country’s graduation into the JP Morgan Global Diversified index should not come as much of a surprise to anyone who has ever visited its economic capital, Lagos. The city’s sprawling population of 10 million stands as a clear testament to the energy and movement so characteristic of this African country.’

Eerdmans says a key factor underpinning Nigeria’s impressive growth trajectory over the last decade has been the ending of a protracted civil war and the holding of democratic elections.

That said, he stresses all the recent presidents have been from the same political party, which highlights that democracy is still young and remains untested by a transition of power.

‘Beyond the need for a continued democratisation, Nigeria still faces a number of other key macroeconomic challenges,’ he adds.

‘First, the country still relies heavily on oil, which accounts for 75% of government revenue and 95% of exports. Furthermore, the vested interests in several key industries, including the oil and gas sector, pose a challenge to the successful implementation of much needed reforms.

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