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Despite its challenges, Africa remains an attractive long-term global investment destination, with its younger and fast-urbanising populations and rising levels of income presenting opportunities to a significantly liquid global financial market, Nedbank economist Isaac Matshego told the Nedbank–New Partnership for Africa's Development Business Foundation Networking Forum, in Sandton, this week.
According to Matshego, institutional investors tended to look beyond Africa’s immediate healdwinds and to the human development factors that would drive significant demand for consumer goods and services in coming years.
“Once the more immediate geopolitical pressures in areas such as Nigeria, Libya, Kenya and Mali are resolved, conditions will become increasingly conducive for investors to start and expand operations in these regions,” he commented.
Over the short- to medium-term, policy response would spur investor confidence, with governments required to continue adopting agile policies adept at normalising local economies in times of crisis.
He added that recent history of missed policy targets in health, education and poverty reduction were the results of external factors such as funding, geopolitical influences and the global economic slowdown rather than governments “not moving”.
Meanwhile, quantitative easing in the US and expected moderate interest rate increases would leave liquidity conditions favourable for frontier markets over a five-year horizon.
“Since 2007, the US Federal Reserve has pumped over $4-trillion into its economy and a lot of that money is sitting in Africa, boosting African stock exchanges.
“For at least the next five to seven years, we do not expect that money to be withdrawn from the continent’s economy,” said Matshego.
The European Central Bank would also inject €60-billion a month into its economy, while Japan was expected to spend ¥80-trillion a year, with a portion of these investments flowing to Africa.
Matshego said the short-term benefit of speculative investment in Africa was its role in propping up local currencies to import capital equipment needed for infrastructure development.
On the consumption side, expanding consumer markets offered promising yields for service industries, such as banking and telecommunications.
“To private equity investors that do not hold the short-term views of portfolio investors, local banks are best geared to facilitate foreign direct investment in cooperation with regional development banks.
“Private equity investors are vital to developing an African skills base, as they take equity in local companies and assume board memberships that enable rich skills transfer,” he noted.