By Carol Pineau
Sunday, July 6, 2008;
B02
P ssst. Have I got a great stock tip for you: Now's the time to buy shares on the Nigerian Stock Exchange. No, really.
I know that may sound like an e-mail from the spam box, but it's actually good investment advice. While U.S. markets have been struggling with the effects of the subprime mortgage debacle and threats of a looming recession, the total value of the stocks traded on the Nigerian Stock Exchange has doubled over the past year.
A lot of that growth can be attributed to new companies listing on the market. But next door, Ghana's stock exchange has already returned more than 33 percent this year, and is expected to end the year as one of the world's top growth markets. And it wouldn't be for the first time.
It used to be that when the U.S. economy sneezed, the rest of the world caught a cold. Today, with globalization, everybody has a pretty bad flu -- except for Africa, where many of the more than 20 stock markets are reporting gains similar to those of the Nigerian exchange. I've been working on a film exploring Africa's frontier markets for the past couple of years, and the returns I've found can only be described as eye-popping. African markets have outperformed Standard & Poor's 500-stock index and many other indexes over the past decade. I've met people who have doubled and even tripled their investments.
Africa today is a fast-moving continent that has made tremendous changes. And yet we in the West cling to age-old stereotypes that undermine confidence in its markets. Africa needs to be able to compete fairly for investment funds, because trade and investment are the only sustainable way out of poverty. And the rest of the world needs to take a new look at the continent, because trust me, we're missing out on some great deals.
Over the past decade, Africa's gross domestic product has grown by more than 5 percent, on a par with the rest of the world, according to the World Bank. High prices for commodities, including oil, minerals such as copper and gold, and such agricultural products as corn and cocoa have been a driving force in the continent's recent economic fortunes. But Africa is also making inroads into manufacturing. The South Africans brag that if you drive a Hummer, you're driving a car made in Africa. Ditto if you drive a BMW with the steering wheel on the right-hand side. The next time you fly on a Boeing aircraft, look out the window and you'll see engines with parts made in South Africa. But that country isn't alone. I've seen factories in Lesotho that produce Gap and Old Navy clothing, car parts manufactured in Botswana and call centers in Kenya and Uganda.
Africa is, of course, still a troubled continent. Poverty levels are extreme, HIV/AIDS rates are the highest in the world, and an obscene number of children die each day from easily preventable diseases such as malaria. Civil unrest and political instability plague Sudan, Zimbabwe and other nations.
The continent also has a severe lack of phones, electricity and roads -- but this is a glass that can be seen as either half-full or half-empty. Development agencies have traditionally looked at the dearth of infrastructure and bemoaned Africa's problems. Investors look at Africa's problems and see opportunities.
In 1990, Ken Ofori-Atta and Keli Gadzepko, Ghanaians who went to Ivy League universities and worked on Wall Street, returned to Ghana to start the country's first investment house. When I met them in 2004, their Databank index was around 4,000. In January, it was 8,400. As Wall Street downgraded several blue-chip stocks in recent weeks and the Dow Jones tumbled more than 350 points, the Databank climbed above 11,250. Asked how much they invest in more established markets in Europe and the United States, the two men smile. "Maybe two percent," says one. "The returns just aren't there," adds the other.
Next door to Ghana is Nigeria, Africa's most populous nation. You probably know Nigeria best as the country where those scam e-mails offering you untold riches if you'll please just send your banking information come from. What you probably don't know is that Nigeria recently paid off its international debt and cleaned up its banking system. In a report last year, investment gurus at Goldman Sachs named it one of the top emerging markets to watch.
Further south is Botswana. The Botswana Stock Exchange (BSE) is really just a few guys who meet for tea every afternoon. Trading starts at 2:30 p.m., but most days, the closing bell has rung by 2:45. Yet the BSE is one of Africa's fastest-growing exchanges.
Linah Mohohlo, governor of the Bank of Botswana, is a poster child for prudent management. Imagine Alan Greenspan in pearls. Under her stewardship, Botswana's federal reserve has amassed an impressive 30 months of export cover, meaning that even if Botswana stopped all exports today, it has enough money in the treasury to continue current levels of imports for 2 1/2 years. This is one of the highest per capita savings rates in the world.
What surprised me most about Africa's stock exchanges weren't the high returns, but the reason for these amazing rates: prejudice.
No, not the black-white variety; it turns out that even Africa's diaspora shares the aversion to investing in the continent. Experts estimate that only 10 percent of Africans living abroad invest back home. It's that we just can't see Africa as anything more than a basket case. It's easy to envision Africans as child soldiers or victims of famine or poverty. But if you envision a stockbroker, an investor, a financial adviser or a mutual-fund manager, chances are you don't conjure up images of Africans. Yet Africa has all of these.
Kim Jaycox, chief executive of the Africa Fund I at Emerging Capital Partners, one of the first and largest equity funds to invest in Africa, explains that the returns are high because the perception of risk is much higher than the reality. When the perceived and real risk levels even out, returns will go down. In other words, as long as we stick to our belief that Africa is a coast-to-coast disaster zone, even well-managed African companies operating in peaceful nations will have to pay a premium to attract capital.
Certainly there are risks to investing in Africa. The markets are small, with little liquidity, making it difficult to move in and out with any speed. Currency fluctuation is also a major concern, although for the last few years it's the dollar that has been losing ground against most African currencies. The main risk is political instability and corruption. The post-election violence in Kenya last December sent that country's stock market reeling, but it rebounded quickly once a political agreement was signed a few months later.
In recent years, Africa has offered the world's highest rate of return, according to United Nations trade figures, and yet the continent would be far down most people's list of investment destinations, with China and India probably at the top. But while we look to invest in China, the Chinese are looking to Africa, where new roads, ports, bridges -- the infrastructure the continent so desperately needs -- are springing up everywhere, thanks to Chinese investment.
What the Chinese want in Africa is what we all want -- the continent's abundance of natural resources, including oil and nearly every strategic mineral that we need for our daily life. Africa recently overtook the Middle East in exporting oil to the United States. The Democratic Republic of Congo has about 80 percent of the world's reserves of coltan, a mineral essential to powering cellphones and other electronic devices. We in the West talk about how much Africa needs us. The truth is that we need Africa, badly.
Who knows how long Africa's current bull run will last? But one thing is certain: Africa's the last big investment frontier. If you missed China and India, don't miss this one.
Carol Pineau is a filmmaker and journalist who has reported throughout Africa. Her film, "Africa Investment Horizons," premiered at the New York Stock Exchange in April.
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