IFR hosted a roundtable at its offices on June 25 to discuss developments in Sub-Saharan Capital Markets. Participating were Stuart Culverhouse of Exotix, François Ekam-Dick of Iroko Securities, Alex von Sponeck of Merrill Lynch, Francis Beddington of Standard Bank, and Ade Adebajo of Standard Chartered Bank.
Sub-Saharan Africa has been firmly thrust into the capital markets spotlight for the first time. As perhaps the final frontier for global markets, the past couple of years have seen an ever more urgent build-out of Africa desks among investment banks and institutional investment houses.
The banks have added specialist fixed-income and foreign exchange sales and trading resources, as well as economists, origination and underwriting professionals and corporate financiers. Investors are establishing an increasing number of Africa funds, and they are actively engaged in learning about the region, the local markets and the local players.
Deal flow from Africa has been light to-date, but it is accelerating. So far, the focus has been on Nigeria, but other countries such as Ghana and Kenya are on the radar screens of the international banking community, and market professionals expect capital markets business to flow from those countries and others before long.
So why Africa and why now? There is a combination of internal and external factors at play: a generally benign global economic backdrop, high commodity prices, stable economic growth in the key African economies along with relative currency stability, the move towards more durable democracies, important domestic policy reforms, and the desperate need for yield among international investors. These have all contributed to make a compelling case for Africa.
The international media focus of poverty, famine and corruption paints a one-dimensional picture of Africa. It certainly fails to tell the whole story. To suggest that the region has solved these intractable problems is clearly naïve. But there is progress in corporate governance and in regulation and supervision, while structural and administrative reforms are either in place or under discussion along with poverty reduction measures. Debt relief initiatives have been a huge boost to the region, helping reduce debt burdens from 100% of GDP to in many cases below 20%.
Within the public sector, there is a generalised reluctance to raise too much new debt, for fear of creating a debt bubble and repeating the errors of the past. But with an increased emphasis on professional debt management and responsible use of proceeds alongside debt raising, there is every hope that history will not be repeated.
Whether or not the sovereigns are there to set pricing benchmarks for the private sector, the latter is likely to step into the capital markets with gusto. Four Nigerian banks have already made the jump into the international debt arena, while another half dozen are in the process of preparing their debuts.
Away from the international capital markets, there is a lot of excitement around the development of domestic markets. With increased levels of buyside due diligence, and the emergence of lay-off or hedging mechanisms, international involvement in domestic markets is picking up. And as African governments undertake reforms to monetise the pools of domestic savings through the creation of institutional investment vehicles, the local bid is strengthening, which will help liquidity and price discovery.
Market participants believe that interest in Africa is not just an opportunistic manifestation of an overbought global market; they believe that even in the event of an emerging market sell-off, Africa will continue to play a part in the international capital markets scene.
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