Investment Adviser:

Sanlam Investment Management

(July 2013)

The Nigerian capital market has seen very strong growth over the last year. What do you put this down to and is this a trend you think will continue in the long-term?

The Nigerian index is up 30% YTD and gained 35.4% in 2012. This growth has been down to a return of investor confidence, increased local investor participation, new market structures to make the market safer and more liquid, improved corporate governance practices among listed companies, robust full year financial results declared by most companies and a huge inflow of foreign portfolio investments. Investors seeking above average returns are being forced to look beyond the US and Europe and the sub-Saharan Africa region offers real returns to such investors. Within this region, Nigeria is the leading destination for investments.


There have been a number of recent initiatives by capital market authorities in Nigeria. Could you explain some of them in detail and how they have improved opportunities for investors?

Opening up the capital markets to foreign investors and allowing free market institutions to flourish has created a capital market boom never before seen in sub-Saharan Africa. Previously, capital markets had functioned only as a government auction or trading post for Treasury securities and equity shares of statutory corporations and foreign subsidiary companies.

What else do you think could be done to make the Nigerian stock market more attractive for foreign investors and are there any such measures planned?

Yes, political stability. Investors seem upbeat and appear to have some confidence in President Jonathan following recent elections. But going forward, the government needs to ensure a stable political environment to improve business confidence and growth. Improving the regulatory environment would also help. Further measures are required to ensure stability and liquidity in capital markets.

Investors have reacted positively to the recent elections and formation of a new government. Do you think this is a trend that will continue or has it been simply investor relief that the elections were relatively peaceful?

This trend will probably continue, as President Jonathan is under pressure to perform from both within his ruling party and outside forces. His publicly expressed desire to contest the 2015 elections will force him to ensure economic growth in the country and contain extremist forces in the North Eastern provinces.

Do you expect the new Kenyan government to have a positive effect on the development of the country’s capital markets and the economy in general?

The economy and the capital markets will definitely benefit from measures taken by the government so far. The World Bank has forecast Kenya’s economy to grow at 5.8% in 2013. Kenya’s thrust to improve infrastructure will boost economic growth in the long run.

The Egyptian market is in a better state than it was 18 months ago, but there are still some concerns over political developments in the country. To what extent is the political situation there affecting the market?

Since the revolution there have been a number of developments in the country which have elicited a mixed response amongst investors. In June 2013, ex-President Hosni Mubarak was sentenced to life in prison for complicity in the killing of protesters during the 2011 uprising. This provided a sense of relief to many. But as the one-year anniversary of President Mohamed Morsi’s inauguration on June 30th 2013 approaches, a number of issues still trouble the country. There have been frequent power cuts, gas shortages and rising food costs which have made the lives of ordinary Egyptians even harder. This in turn has led to mass protests all over the country. The political instability has led to Egypt’s economy declining since the revolution, with unrest chasing away investors and tourists. Foreign currency reserves are half of what they were under Mubarak. The country’s stock exchange hit an 11-month low recently and the EGP has fallen by 10% since last year. With the potential exclusion of Morocco from the MSCI EM African ex-ZA index in November this year, Egypt will have the smallest market capitalization in the index. In addition, the delisting of one of Egypt’s biggest companies, OCI, will further weaken Egypt’s case to be part of the global basket of investable countries for foreign portfolio investors.


Are there some sectors or individual companies which remain a good long-term bet in Egypt regardless of any future political developments?

The food and beverage and pharmaceutical sectors look promising. These sectors have outperformed the EGX 30 on a YTD basis. According to Business Monitor International, Egypt’s headline pharmaceutical expenditure in 2013 is projected to be around EGP14.45bn, up from EGP12.83bn in 2012. The headline healthcare expenditure in 2013 is projected to be around EGP85.35bn, up from EGP74.16bn in 2012, which is a positive indicator for the industry as a whole. Also, 2013 per capita food consumption growth is expected to be 10.43%. A key risk though is a potential spike in inflationary pressure, with a looming currency devaluation and rise in domestic energy prices likely to undermine household purchasing power.

Much has been made recently of Africa’s reliance on Chinese demand for its natural resources and the risks to the continent’s economies if this demand suddenly wanes. Do you think there is any real basis for these fears?

With Chinese GDP growth expected in the 9% p.a. range, demand for African natural resources will not suddenly wane. In fact, to sustain the growth rate, China is likely to increase its appetite for comparatively cheaper natural resources such as copper, oil and coal. With its previously preferred partner Australia becoming tighter and costlier, African countries are becoming a more attractive destination for China and Chinese companies. So, no, there is no real basis for such fears.

What do you see as the prospects over the next six months for the economies and markets in which the Fund invests?

Overall, sub-Saharan African countries will continue to outperform African markets as a whole.


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