EMTA and Thomson Reuters Africa Forum Return of the Frontier Markets: Is Africa Back in Business?
On Friday, November 20, panelists from the private sector, World Bank and IMF debated how the financial crisis has affected Africa and whether the worst is over. The prevailing view, underscored by the IMF’s Deputy Director for Africa, Sharmini Coorey, was “cautious optimism” that growth had bottomed out and would be resuming to normal patterns in the coming months.
The Forum, which attracted over 180 attendees to Thomson Reuter’s European Headquarters in Canary Wharf, began with a keynote address by Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya, who joined the conference from Thomson Reuters’ offices in Nairobi. Professor Ndung’u admitted that Kenya had suffered from the financial crisis, and due to the negative impact on tourism and export revenues, Kenya’s growth forecasts remained low at 3%, as compared to the African Development Bank’s average forecast for East Africa at 6%. He discussed Kenya’s ambitious inflation target of 5% or below, which appears feasible after the implementation of a new calculation method approved by the IMF (October’s inflation rate was at 6.6% using this new calculation), and appeared cautiously optimistic that the policies Kenya had implemented during the crisis were working. Of note, Professor Ndung’u also assured investors that Kenya was still planning to issue a sovereign Eurobond, which had been postponed due to the tightening credit environment, in the next year.
When asked what his government and others in Africa were doing to address the problem of corruption, Professor Ndung’u redefined the question in terms of weak government institutions, suggesting that so long as Africa (his country included) lacked robust institutions that could efficiently deliver services to their citizens, corruption would remain a problem. Other participants who weighed in on the corruption issue at different points during the conference also suggested that some corruption was tolerable and inevitable and that the real focus should be on accountability, and that overwhelming bureaucracy was also to blame for Africa’s inefficiencies.
The first Panel, moderated by Matthew Tostevin, Reuters’ Africa Editor, then examined the question of Africa Post-Crisis and how Africa was going to attract the kind and amount of financing necessary to meet its huge infrastructure and development financing needs. Panelists in London included Francois Ekam- Dick of Iroko Securities, Richard Segal of Knight Libertas, Stuart Culverhouse of Exotix and Michael Fuchs of the World Bank. Joining by video-link from Thomson Reuters’ Washington, DC bureau were Sharmini Coorey, Charles Blitzer, and Sean Nolan, from the IMF.
The view from the panelists – with greater and lesser degrees of optimism – was that Africa is on the mend, but questions do remain about how financing needs will be met. The combination of concessional financing from the International Financial Institutions (IFI’s such as the AFDB, IMF and World Bank), loans from China and other donors, and local and international capital markets offer African governments alternatives, but the balance, post-crisis appears to have tilted heavily towards the IFIs – query how would the balance be restored? Botswana, Africa’s only A-rated country, which recently took a loan from AFDB rather than seek financing from market sources, was cited as an example of how even the best positioned African governments continue to shy away from market finance. The IMF suggested that it was flexible in its entry and exit into these countries, and when conditions improved, it would scale back its increased involvement.
The more controversial issue of the Cote D’Ivoire’s Sphynx restructuring was the topic of a lively exchange between Mr. Ekam-Dick and Mr. Blitzer of the IMF, in which it was suggested that the IMF policy definition of External Debt (i.e., debt, regardless of whether it is issued externally or domestically, and regardless of whether it is denominated in domestic or foreign currency – is considered to be External Debt when its beneficial holders are off-shore residents), was discriminatory, as it unfairly differentiated between investors based upon their postal address, and created uncertainty with respect to all foreign investor participation in local capital markets. Mr. Blitzer responded that lenders had a responsibility to undertake due diligence and understand the risks involved in their lending, including as in the case of the Cote d’Ivoire, the risk that they could be corralled into a restructuring. He said that this was particularly true if a restructuring was forthcoming when investors went into the deal, as was the case with Cote d’Ivoire.
Mr. Fuchs, who was more cautious about Africa’s recovery, took the view that local capital markets provided the best option for financing, in particular for Africa’s corporations, and he described World Bank efforts to strengthen local capital markets. Some panelists expressed skepticism that the local markets were sufficiently deep to meet financing needs. They also raised the issue of the lack of large, liquid benchmark deals, which affected pricing and discouraged participation of foreign investors at a time when other opportunities in other Emerging Markets were abundant.
The IMF also discussed upcoming plans for a loan to Angola.
The second Panel, also moderated by Mr. Tostevin, focused more specifically on foreign investors’ opportunities in Africa and featured Graham Stock of JP Morgan, Ade Adebajo of Standard Chartered Bank, David Cowan from Citi, Alisa Mujagic from Knight Libertas and Michael Hugman of Standard Bank. This panel debated how to improve liquidity in Africa’s local markets, and whether the problem in attracting foreign investors lay in lack of supply of investable assets, or lack of demand. David Cowan suggested that African governments need to think strategically about what they need to raise money for, and what sources of finance best meet these needs, in order to provide a road-map for themselves and their investors. Michael Hugman discussed the Nigerian banking crisis and what lessons it provided to other governments – primarily pointing to difficulties presented by opaque ownership structures and over-reliance on the stock market. The involvement of China in Africa was also raised in this panel, as the presence of the Chinese, both official and private lenders, created further opportunities for African governments, and competition for their potential western lenders and underwriters.
A webcast of the event is available, courtesy of Thomson Reuters, in the New Developments area of EMTA’s website www.emta.org. For more information about this event and EMTA’s other Africa-related initiatives, please contact Starla Griffin at sgriffin@emta.org.