All sectors in Africa are viable, have potential of attracting investors

Friday April 21 2017

Miguel Azevedo,Citibank’s head of investment

Miguel Azevedo,Citibank’s head of investment banking for Africa. PHOTO|FILE 

By ALLAN OLINGO

The continent is picking up but is still slow in attracting investors. Miguel Azevedo, Citibank’s head of investment banking for Africa speaks on the investment outlook and challenges

In the past two years, we have seen a rout in commodity price, currency depreciations and a widening deficit. Are these dampening investors’ appetites?

Devaluation affects the value of assets in foreign currency.

It is never a good thing but it is expected and people can live with that.

It does affect the sentiments because when you lose money, it affects confidence. In the countries that this happened, they are now beyond it and we should now see an upswing from them.

What is critical in a few countries, is the ability to convert currency as any investor may need this flexibility and this is what informs the sentiments. In West Africa, we had a massive issue last year as liquidity became tight.

When it comes to mergers and acquisitions, what sort of outlook are we looking at?
Africa has many areas of long term growth.

It may remain muted in the next year but we are seeing growth, especially population and consumer spending growth. For the long term, strategic investors can see through that. In the past year and the coming year, we are seeing strategic investors coming in.

In the stock markets, we are seeing interests but we need sentiments to improve a bit. Unfortunately, we are yet to see more companies listing on the stock markets in Nairobi, Johannesburg and Lagos.

The challenge is more on the supply of companies to the market rather than investors seeking to put their money in them.

Having crafted some mega merger deals, what sectors are emerging as attractive to investors on the continent?
It is pretty much every sector. Leaving mining aside, there is a lot of interest in consumer related mass market sectors.

That is healthcare, financial services, construction and telecommunications. Infrastructure is also becoming a bigger sector especially because of the continents; massive need for it.

This includes roads and power infrastructure. There is interest in this but few transactions happening mostly because of its complexity of structuring the deals.

How was African countries performance last year in the eye of investors?
Last year was a year of pause, with different pictures for most countries. West Africa, with the exception of Nigeria was coming out of recession.

North Africa was working its way out despite having different situations like Egypt. East Africa was more interesting as it is more diversified and less dependent on mineral.

We have seen growth of 5 per cent to 6 per cent and in a sense, this is the moment for the region to take the lead and capture more investments. In my opinion, this year we should also expect some moderate growth. Globally, the economy is uncertain, especially with a new president in the United States.

Within the region, we will be holding elections in Kenya and we know what that does to the economy and generally how investors react.

In terms of attractiveness, how do the African countries angling to issue the bonds fare?
Each countries has its own opportunities and uniqueness. Overall they are very attractive but what’s important is macroeconomic stability, which Ghana and Nigeria have not offered.

Kenya on the other hand, we have seen its exchange rate stable, giving a good measure on how balanced it was. In terms of bonds, each country has its own rating but those with better ratings will definitely attract lower rates.

Investors will also be looking at these countries’ prospectus and where it will be spent.

They want to know where it will be invested in a bid to determine the returns. Clarity in terms of use of proceeds will be a differentiating factor for these African countries looking at the sovereign bonds market.

Africa still lags behind in merger and acquisitions; why has this been the case?
The level of mergers and acquisition is highly correlated with that of economic activity. Africa’s GDP is lower than other markets. Africa need a lot of investments in most of the sectors to attract these deals.

Basically mergers and acquisition involves purchases of firms to grow yet here we still have new entries, and this thereby reflects on the number of merger deals.

Most of the merger and acquisition deals in Africa involved putting in more money so that the firms can expand as it is associated with growth and investment.

We are talking of a continent where firms have to battle with governance and ethical issues, is this an issue that investors look at before making the minds on the continent?
Investors want stability and sustainability, which are always associated with doing the right thing and providing the right feedback to investors. When you have the right level of governance and scrutiny then you will attract investors.

This is why for bonds, you need ratings, which basically is an opinion of the firm.

It is important for investors to look at all these elements — especially in areas of operations where a lot of market chatter is affected by governance and ethical issues — before putting their funds into a firm or country.