Business for Africa - no-go zone is looking good

For many years, large parts of Africa have been virtual no-go areas for foreign businesses.

Poor corporate governance, unreliable economies and political unrest have deterred all but the most committed investors.

This is no longer the case. An economic revolution caused by the booming global demand for commodities means the corporate world can no longer afford to ignore fast-developing nations such as Nigeria, Botswana and Ghana.

Soaring stock markets, stable economies and good levels of overseas investment have improved the fortunes of many countries, which have been able to use part of their new wealth to fund internal consumer booms of their own.

Perceptions of sub-Saharan Africa have certainly shifted, says Innes Meek, director of CDC Group, a funds investor which has assets worth about £2 billion ($5.4 billion) in the world's poorest countries.

"South Africa has always been a magnet for business but other economies are now attracting interest," he says.

"Nigeria, for example, has a substantial economy, backed by oil, and a large population which provides opportunities for businesses to grow."

Bryan Collings, managing director of Hexam Capital Partners, sees several reasons for the turnaround in fortunes.

"A lot of politically stable countries endowed with resources such as oil and commodities have succeeded in strengthening their reserves, stabilising interest rates and providing a much better environment in which to operate," he says. "They have also benefited from the development of capital markets in the region.

"We've had greater liquidity over the past five years, as well as cheaper money and a reduction in risk aversion.

"This means money has found its way into new markets, and Africa has definitely been a beneficiary of these moves."

As well, the fast-developing sub-Saharan nations are looking attractive on a relative basis.

"Fifteen years ago, places like Brazil and Mexico were still developing so money was being allocated to those markets rather than Africa," Collings adds.

"As these places, as well as the likes of Poland and Hungary, have started maturing and levels of competition have increased, investors have started to look elsewhere."

This assessment is reflected in the performance of the sub-Saharan stock markets, which outperformed the likes of South Africa during the first six months of this year.

The sub-Saharan African markets - excluding South Africa - rose by 38.2 per cent and were not affected by the March correction, which affected several rival emerging markets, or the Nigerian presidential elections a month later.

The rise compares with a 10.2 per cent rise for the MSCI Far East index and a fall of 5.5 per cent in the MSCI Eastern Europe index.

Business for Africa - no-go zone is looking good - 14 Aug 2007 - Economic News - NZ Herald