Ex Africa Semper Aliquid Novi

Ken Ofori-Atta

This paper is about investing in Africa's emerging markets, about the regulatory changes that have occurred and difficulties investors face. Some of the changes are: foreign exchange controls have been decentralized, currency redenominations have occurred, inflation targeting as a monetary policy tool has been adhered to, privatization continues without the previous history of violent protest. In the capital markets, security exchange commissions are stronger and credible. Circuit breakers have emerged in certain stock markets and to facilitate credit, credit reference bureaux are being established and regulations for microfinance institutions have been encouraged to facilitate the deepening of the financial industry. There is a positive and welcoming attitudinal shift. But the kernel of the story is different and much more profound than these mechanical changes.

And that is why I have labelled my talk with a quotation from Pliny the Elder - a Roman Historian who said:
Ex Africa Semper Aliquid Novi,
Out of Africa always something New!
Let's see whether we can discover something new from Africa in this period of global financial crisis.

Africa's GDP growth rate has stabilised around 5.7% in the past decade; dropping dramatically from a projected 6.4% in 2008 to 4.9% and for 2009 it is expected to drop further to 2.4% or maybe more. So we too are obviously facing a crisis and we cannot keep denying it. Though this is still double the expected growth rate in the West, it is regrettable because we should be growing at over 6% if not for the global credit crunch.

We have not seen such massive destruction of wealth in the history of modern civilization and I might add also such rapid recreation of capital in the past year. Africa is truly astounded at how quickly the West can mobilize to save their companies when a fraction of those amounts could reinstate the impressive growth trajectory which Africa had achieved.

My contention, however, is that Africa has never been better prepared for such a debacle. The past decade has seen a marked improvement in capital flows to Africa - the natural resources have always been there, so it is the economic growth, political stability and Africans reinvesting in their economies that has bolstered this. Examples from Ghana and Tanzania illustrate this turn around. Tanzania's Mkukuta development strategy has yielded FDI of 4% of GDP.

While Ghana which had averaged $28 million per annum in the past two decades had US$1.35 billion in 2008, even if you sanitize it by Vodafone's US$900m privatization transaction, you have a tidy US$ 435 million of FDI. I believe that already in 2009 some US$500 million has been registered.
In Senegal, President Wade's Investment Promotion Center is within proximity of the Presidency and his foreign trips are 70% commercially driven. Senegal is also closely following the Tamasek model of Singapore as it looks to build for the future.
Ethiopia - has branded its coffee as it seeks to capture as much of the retail price premium as possible. We know this can be significantly more but more importantly like Ghana's cocoa it stabilizes her prices. African governments are responding in a more competitive and market driven way.

Long term investors and partners for Africa should acknowledge the following changing investment contours of our land:
Improved Democratic Principles
- Politicians are more receptive to the private sector and market driven principles - Politicians give up power in properly run polls
- In Ghana, the political parties actually signed MOUs with the Association of Industries on the run-up to the elections
Sustained Economic Growth and Stability
- Good governance and fiscal prudence are common place - Expected growth rate in 2009 to be double the global growth rate
External Push Factors


The emergence of Sovereign Ratings has forced the ministries of finance and Central banks to be more sensitive to market principles. A number of countries have responded by issuing bonds on the International market. Both Ghana and Gabon have the following: - Ghana US$750 million (8.5%) - Gabon US$1 billion (8.2%)
While the following countries have postponed: - South Africa US$1 billion (Due 2012)

- Seychelles US$200 million (defaulted) - Tanzania US$500 million (postponed)
- Uganda US$1 billion (postponed) - Nigeria (postponed) - Zambia (postponed)
In addition new programs such as the MCA, AGOA, APRM have created more transparency and responsiveness to better governance. This is further consolidated by our entry to the International bond market.
All these create a discipline, predictability and narrows the information asymmetry which has dogged Africa in the past, but now enables you and I to transparently 'derisk' the continent. So the question really on this broken record Is this: Is this a matter of sheer stereotyping or is it unwillingness on the part of us professionals to do our work (difficult though it might be) to bring the story to our investors.

I believe that the most transformational actor in Africa's newness is the emergence of African Entrepreneurs. They have set us on an 'irreversible' path of modernization and confidence. They are well educated, they have international experience, they are well connected, they understand the world of finance and they are confident. Not unlike the Indians in Imagining India by Nilekani, these entrepreneurs are precocious and as Friedman says of Indian entrepreneurs , they are replacing the low aspirations and failed economic ideas with 'their own high octane energy and boundless aspirations'.

In Africa you can now talk of super Entrepreneurs such as Mo Ibrahim, Dangote and Tokyo, while we have an impressive critical mass of younger entrepreneurs such as Ali Mufuruki of Tanzania; Isaac Shongwe of South Africa, Aigboje Aig-Imoukhuede of Nigeria, Prince Kofi Amoabeng of Ghana, Alaone of Morocco, Joseph of Kenya, Rodriguez in Mozambique and many of my senior banking colleagues from Nigeria and many more others. Fortunately Africa has found a magic cycle of Diasporans to refuel this resource. For me this is the hope, this is the guarantee that is embedded in Africa's future prosperity and this should be the basis of our covenant with investors. Let me redirect this dialogue to some truths about Africa's current capital markets 'correction'.

I, like most capital markets professional in Africa, believe the selling is indiscriminate, obviously driven by the woes of hedge funds and imploding funds such as New Star. I don't believe that the nature of the fundamentals justify the extent of continuing sell-offs we are experiencing in our African capital markets, especially as earnings expectations are also reasonably robust. Forced selling, momentum selling, indiscriminate selling of defensive and non-defensive stocks seems to be the order of the day. Banks, breweries, staple foods, cement companies are all on the block.

But what is the reality? For example at Databank we created the first Pan Africa open ended equity mutual fund in Ghana and since 1996 it has increased from an initial value of US$25 to a peak of over US$100million with over 70,000 shareholders. In the past 10 years we have averaged a return of 32.43%, and in the past 5 years it has averaged a return of 20.36%

Africa remains the rare example in the current global environment which can illustrate significant growth on both the macro and micro (earnings growth) levels, and with relatively little debt. For most of us, low PE's, double digit dividend yields, forced downward rerating of the stock market coupled with growth signal significant capital appreciation in the coming years, especially as the credit contraction eases and hedge funds and bank balance sheets become fully deleveraged in the West.

I have to mention the Sino-Africa embrace which has created grave discomfort in certain quarters. Is China a benign economic and development partner or an exploitative force. China needs to grow its US$1.4 trillion economy by over 8% to maintain social cohesion. This is a country with 20% of the world's population, but with only 7% of the world's arable land, 3% of its forests and 2% of its oil while Africa produces 11% of the world's oil supplies and has 8% of all proven reserves. China Africa trade has experienced exponential growth in the past decade. Africa's exports to China have grown from approximately US$190 million per month in 1999 to US$5 billion per month in 2008. While total bilateral Sino-African trade has grown from US$10 billion in 2000 to nearly US 110 billion in 2008.

Africa's 850 million people, though poor, have a low debt profile and a voracious demand for consumer goods. With Africa's limited exposure to toxic assets we expect its demand for Chinese products to continue to increase even as global demand shrinks.
But it is not all trade. There is extensive investment in infrastructure: mining developments, construction of roads, railways, hospitals, schools, power plants and investments in Zambia, DRC, Angola, Sudan, Nigeria, South Africa, Ghana, Liberia and many other countries across the continent.
For China, Africa is a business destination. This establishes a new working model for Africa not predicated on a colonial legacy of aid but of trade and investment. My view is that with China's entry, Africa's products, and investment opportunities will be better priced, thus giving us a better value proposition for our assets.

Ladies and Gentlemen, it is a rare and auspicious moment when Africa pulls itself up the J-curve and it is paradoxically, the events of the global financial crises that threaten to put us back into this old
Sisyphean cycle: Credit lines are curtailed, trade finance is drying up, remittances are declining and loans are being called in. Major FDI investments such as iron ore in Liberia, bauxite in Guinea, commercial agriculture in Ghana, real estate in Nigeria are being pulled and/or delayed. This is like removing sleepers from underneath a fast moving African train.

The West must recognize that it is in its own enlightened self interest to direct liquidity to Africa, because this will create the requisite demand for products from the West. Not only must the IMF and World Bank refine their interventions but the OPIC's, EXIM BANKs, KFW, and FMO etc must more creatively support and back their companies, not unlike China, to aggressively engage in critical private sector and public private partnership especially for infrastructure investments in Africa. .

But we do have our challenges, of which we must be impatient, and positively restless because we have the capacity to tackle them.
They include:
Low Financial Depth - Incomplete and missing markets
Market imperfection and asymmetric information - Gaps in capital markets integration - Lack of regional markets
Restricted Access to Financing
- Financial exclusion for most of the population (almost 50% on less than $1.25 a day) - Lack of financing for SME's and agriculture
- Poor linkages between the formal and informal sectors (80% of total employment)
High Cost of Capital
- High cost of equity and debt - Weak mobilizing capacity of Stock Market - Lack of Pension Funds - High Bank Charges

In spite of these challenges, I believe Africa is entitled to be at the table. If there was ever a time for a systemic review of Africa's place without it being viewed as pan-handling, that time is now. Financial markets, as we have all been led to believe, after all do not tend towards equilibrium. We are witnesses to the massive fiscal response to create money in order to loosen the credit crunch, recapitalize (nationalize) the banks and write off debts.
African countries in the periphery also require such care in significant doses. Allow me to propose therefore, that in addition to the G20 support to the IMF and World Bank for Africa, we must find a vehicle to guarantee long term sovereign bond issues of African countries.

This would enable Africa to also do the following:
- strengthen its banks - provide liquidity to Africa's capital markets and mutual funds and guarantee bonds/instruments denominated in local currency
Let us take advantage of easing of ideological financial paradigms and embark on fundamental systemic reforms which will serve Africa and the World's interest in the long run.

So sure there are difficulties facing investors, but I am not sure that that is the issue. Are there changes that can be made? Yes there are, and always will be. But what is unique in the New Africa that I see: A new attitude which has resulted in impressive political and economic reform;
A capital markets whose future fortunes can't be matched; A region of growth in a World of recession.

A China that is revealing the investment potential of the old continent and An alchemy that is being created by the new African Entrepreneurs on the continent and from the diaspora.
In Africa we must continue to make the Right Choices and maintain our confidence, and then our financial superstructure will become robust and support our increasing need for long term capital and a policy orientation which promotes regional growth and build strong local demand across Africa.

In Ghana our northern belt beckons massive agriculture infrastructure and industrial development to serve a regional sahelian market of over 80 million people. We must have the boldness to embark on such projects that could potentially transform the lives of many people and create a self perpetuating demand cycle.
It is a continent leaving the Jeremiah's and Cassandra's behind. Africa is moving forward. I am optimistic but not at all naïve after 19 years of being back at home.

As Friedman said of India in Nandan Nilekani's Imagining India, "it all depends: on governments as aspiring as its people; on politicians as optimistic as its youth; bureaucrats as innovative as its entrepreneurs and rural, district, regional and national leaders as impatient, creative, and energetic as their kids [and the world as excited and confident about Africa as the new African Entrepreneur]”.

The new African entrepreneur is our lodestone for a continent with renewed confidence.
'Ex Africa Semper Aliquid Novi'
Out of Africa always something new.

Thank you.
Ken Ofori-Atta, the Executive Chairman of Databank was the main speaker at last week's "Africa Investment Forum", organised by Chatham House, London. Also on the platform was President JEA Mills, who was the Special Guest.