Mismatch as Afro-FDI continues in face of equity retreat - Stanlib

Some retail investors and fund managers may be reducing their African equity exposure, but foreign direct investment (FDI) continues unabated.

The contrast between Afro-nerves on one side and the steady support of some major groups has been highlighted by STANLIB, a consistent advocate of African diversification in its marketing to international investors.

Dylan Evans, STANLIB’s London-domiciled director of global investment marketing, acknowledges that some African equity markets made big losses in the final quarter of 2008.

“As the downturn persisted, profits began to be taken in a number of less liquid markets and in thin volumes price movements were sharp,” he notes. “The worst performing markets over the quarter were Nigeria, down in US dollar terms by 42.64%, and Zambia, down 49.46%.

“This throws into stark relief continued flows in the opposite direction as long-term investors commit capital to infrastructure, resources and power generation.”

STANLIB, South Africa’s largest unit trust company, runs the only African equity fund to comply with UCITS (Undertakings for Collective Investment in Transferable Securities, the European green light for EU-wide marketing).

The Johannesburg-based company supports the marketing effort with regular investor reports that itemise the capital projects that move forward month after month.

The latest report spotlights:

• The announcement that Portugal’s largest builder, Mota Engil, is to invest over $1 billion in Angola over the next five years – targeted mainly at renewable energy, water distribution and sewage treatment.

• Zambia’s launch of a US$400 million power project at Kariba Dam that will add 360MW to power generation capacity. China’s Sinohydro Corporation will build the plant. China’s Export and Import Bank is providing 85% of the funding with the balance from the Development Bank of South Africa.

• Investment of US$20 million by India’s Binani Group in a new cement factory in Port Louis, Mauritius.

• A deal between ContourGlobal Kivuwatt and Rwanda to develop a facility to provide 100MW of natural gas-fired electricity. The facility will extract methane from Lake Kivu. ContourGlobal Kivuwatt is a subsidiary of ContourGlobal, a US$3 billion fund run out of New York. ContourGlobal is also involved in power projects in Togo and Nigeria.

Evans adds: “It is significant that some major players are at pains to emphasise their continuing African optimism even when they are not making new investments.

“For instance, Brazil’s state-owned oil company Petrobas recently announced plans to invest $2 billion in oil and gas exploration in Brazil, but stressed that Nigeria is second only to the Gulf of Mexico as a destination for its foreign investment.

“Investors may not be putting big money into African portfolios right now, but some major players are putting lots of capital into the ground. That’s a very positive signal.”