Fund file: Out of Africa

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Things were looking good for the big continent in the middle of last year. Africa was attracting record inflows after a sustained period of good news. But, as a report in Monday’s FTfm indicates, the whole continent is suffering the fallout from the events in North Africa and the Middle East.

“Last year saw record net buying of African equity, to the tune of $5.98bn,” says Cameron Brandt, director of research at EPFR Global, the funds flow data provider. But he emailed a graphic showing just how things have changed. “Here’s what things look like week by week since the beginning of 4Q10,” he wrote.
John Mackie, head of African Investments at Stanlib, says the prolonged closure of the Egyptian Stock Exchange damaged the credibility of a market that is the source of much of Africa’s liquidity. It saw sharp daily falls when it finally reopened on Wednesday.

“You could take the view that you simply cannot put money in a market that does not function,” says Mackie.

Jens Schleuniger, managing director Africa at Altira Group and former manager of the DWS Africa fund, notes, while it is important to distinguish between North Africa and Sub-Saharan Africa, the Egyptian situation does create a trickle-down effect in other African markets.

“Problems in North Africa remind investors that there is risk, and risk appetite has fallen in the last couple of months,” says Schleuniger.

Fighting in Libya and an entirely unrelated civil war in Côte D’Ivoire have not helped the general Africa story either.

You would think that all the bad news and associated heading for the hills would put Africa back on the starting blocks, but FTfm’s report shows specialist investors in the region are keeping the faith and believe that Africa’s GDP and demographic numbers still add up to a strong long-term story.

Recent Citibank figures predict that Africa’s share of global GDP will rise from 4 per cent in 2010 to 7 per cent in 2030 and 12 per cent in 2050.

“Africa is the one continent that should be able to feed itself and export,” says Mackie.

Carlyle Group, one of the largest private equity firms, on March 24 announced the launch of a sub-Saharan Africa group. You could call it bad timing or shrewd positioning.

Rod Evison, managing director for Africa at CDC, the UK’s development finance institution, clearly thinks it could be shrewd: “The process of democratisation is advancing fast,” he says. “The long-term story is absolutely there.”

Emma Boyde| March 29, 2011 | Financial Times|

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