International investors no longer see any unusual investment risks in sub-Saharan Africa, according to Mark Kerns, African head of investor services for pan-African group Standard Bank.
In a commentary on the region Kearns says that, consequently, increased investor interest in the region and the desire to develop more liquid local capital markets has seen the reform of securities markets across the region.
Overall international investment allocations to Africa are still relatively low – so much so that if international pension funds invested even 1% of their assets under management, it would overwhelm the region’s exchanges. However, from that low base the growth has been exponential over the past five years.
As sub-Saharan Africa becomes a much sought after frontier market investment destination, the requirements in terms of administering those investments are growing rapidly. Market capitalisation and liquidity in most markets is small, but Standard Bank and others are bringing new products like securities lending to the market, which will in turn boost liquidity and the range of investible products.
The latter includes custody; trusteeship; securities lending; derivatives clearing; and investment administration (including accounting, valuations, compliance and performance measurement).
“In South Africa, each of these services is available, but each country in the rest of Africa is at a different stage of maturity and our offering in each country parallels that. For instance, Nigeria is the closest to a full offering, and in the second quarter of 2013 Standard Bank will introduce securities lending and borrowing, as we believe there is significant growth potential in this market,” said Kerns.
Kenya and Zimbabwe are the next most mature and Standard Bank offers trusteeship in those markets, while investment administration is offered only “in selected countries”. However, outside South Africa, no market yet has the demand or regulations to justify the full suite of services although Kerns expects this to happen in time as some of these markets are growing aggressively – albeit off a low base after they were heavily sold off post 2008.
Nigeria’s stock exchange rose 40% last year and has already risen 25.4% so far this year. Nigeria is the major focus of interest for investors as the government has lifted various restrictions on foreign ownership of securities and buying government treasury bills, thereby stimulating liquidity and demand. In addition, a number of other markets such as Kenya and Zimbabwe are performing at no less a pace.
African markets have to be seen as in its formative stages, one that will grow exponentially for some years. The next step is more listings and variety of products such as exchange-traded products (ETFs) and pan-Africa unit trusts, of which there are already a number. These are mostly listed on the Johannesburg Stock Exchange (JSE), but there is a trend for them to list in other markets, with the first, NewGold, having already done so in Ghana. The Ghanaian regulator had set a goal of 50 listed counters and this was exceeded ahead of schedule.
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