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Africa – Full of Promise

African Business Research Limited 1-2 Universal House 88 - 94 Wentworth Street London Tel: +44 (0)20 7392 4058. Africa – Full of Promise. Presentation to the 11 th ASEA Conference Accra International Conference Centre 29 October 2007 Dr Ayo Salami. Disclaimer and caveat.

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Africa – Full of Promise

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  1. African Business Research Limited 1-2 Universal House 88 - 94 Wentworth Street London Tel: +44 (0)20 7392 4058 Africa – Full of Promise Presentation to the 11th ASEA Conference Accra International Conference Centre 29 October 2007 Dr Ayo Salami www.africanbusinessresearch.com research@africanbusinessresearch.com

  2. Disclaimer and caveat This publication has been prepared by the African Business Research Limited (ABR) for information purposes only and is for the exclusive use of the recipient. We are not soliciting any action based upon the information contained in this publication. The material contained in this publication (i) should not be construed as an offer to sell or a solicitation to buy any security in any jurisdiction; (ii) is based upon information that we consider to be reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Opinions expressed in this publication are current opinions as of the date appearing on this material only and the information including the opinions contained herein are subject to change without notice. ABR will not accept liability for any loss howsoever incurred by any person or financial institution due to any events or actions taken as a consequence of the preparation and dissemination of this document. www.africanbusinessresearch.com research@africanbusinessresearch.com

  3. Africa – moving from promises to results “Africa is indeed on the move. In contrast with the 1990s, conflicts in Africa have declined, economic performance has improved and some clear ‘high performers’ are beginning to emerge.” World Bank 2006 “Since 1995 there has been at least one African equity market among the top 10 best performing markets in the world. Last year (2006) Malawi was the best performing stock market in the world posting gains of 129% in US dollar terms. Joining Malawi in the top ten stock markets was Morocco (up 88%) and Botswana (up 55%).” African Business Research www.africanbusinessresearch.com research@africanbusinessresearch.com

  4. Why invest in Africa? Africa: A Lie by Omission www.africanbusinessresearch.com research@africanbusinessresearch.com

  5. The view from abroad : Misconceptions about Africa • Investing in Africa is risky • The region is a basket case that is politically unstable • Regulations are insurmountable • There are no investment opportunities www.africanbusinessresearch.com research@africanbusinessresearch.com

  6. United States Square miles India China 3,705,390 New Zealand Argentina United States 3,618,770 India 1,266,595 China Europe 1,905,000 Argentina 1,065,189 New Zealand 103,736 Europe 11,664,680 Africa 11,707,000 Africa in Perspective:- Land mass and proportion of world’s resources Resources Land mass - 20% Diamonds - 90% Gold - 50% Phosphate - 90% Platinum - 40% Petroleum - 8% Natural Gas - 12% Source: Academic Centre for Education Development Source: Ayittey, George B.N. Africa Betrayed, 1993, Palgrave Macmillan , ISBN: 0312104006 www.africanbusinessresearch.com research@africanbusinessresearch.com

  7. “Wind of change” blowing across Africa – declining political risk 1980 2007 Undemocratic countries Democratic countries Wobbly Democracies Source: African Business Research www.africanbusinessresearch.com research@africanbusinessresearch.com

  8. 12 consecutive years of growth in real per capita GDP Source: World Bank data www.africanbusinessresearch.com research@africanbusinessresearch.com

  9. Sound monetary policies …. Source: World Bank data www.africanbusinessresearch.com research@africanbusinessresearch.com

  10. … have controlled money supply and reduced inflation Source: World Bank data www.africanbusinessresearch.com research@africanbusinessresearch.com

  11. External debt is becoming sustainable Source: World Bank data www.africanbusinessresearch.com research@africanbusinessresearch.com

  12. With a little help from our friends in China As the Chinese economic resurgence has proceeded, Africa has become more important for China as a source of the raw materials needed by the Chinese manufacturing sector. African economies, in particular oil and commodity producers have benefited substantially from China’s demand for raw materials The historical trade deficit with China’s has now become a surplus Source: WTO Direction of trade statistics www.africanbusinessresearch.com research@africanbusinessresearch.com

  13. Low correlation with other global markets offers diversification opportunities Correlation matrix between regional equity markets Correlation coefficients based on daily equity returns between 1/1/2000 and 29/09/2006 Source: MSCI, African Business Research www.africanbusinessresearch.com research@africanbusinessresearch.com

  14. Anybody heard of Sub-Prime? USD Returns to various equity markets over the period 19 July to 15 August 2007 The correction in global equity markets following the sub-prime crisis had minimal impact on Africa On July 19, 2007, the Dow Jones Industrial Average hit a record high, closing above 14,000 for the first time. By August 15, the Dow had dropped below 13,000 and the S&P 500 had crossed into negative territory year-to-date. Source: MSCI, African Business Research www.africanbusinessresearch.com research@africanbusinessresearch.com

  15. Did you say something happened in China? Sorry we missed it! USD Returns to various equity markets over the 2 week period 26 Feb to 9 March 2007 The sell-off in global equity markets following the correction in China in February did not affect Africa On February 27, 2007, the Shanghai index plunged 8.8%, its biggest one day drop in a decade following rumors of the introduction of capital gains tax on equity investments. Over the next two weeks, most global markets followed with sharp declines. Source: MSCI, African Business Research www.africanbusinessresearch.com research@africanbusinessresearch.com

  16. African equity markets – Great returns Annual returns to African equity markets (ex – South Africa) over 1995 – 2006 Average annual returns of 13% (in US$) over the last 12 years from Jan. 1995 to December 2004, relative to 8% for SA, 6.3% for G7 countries and 6.6% for the All Global equities markets. Source: Local Stock Exchanges, African Business Research www.africanbusinessresearch.com research@africanbusinessresearch.com

  17. Equity returns among the best in the world Average annual returns to various regions (1995 to 2006) Source: MSCI, African Business Research www.africanbusinessresearch.com research@africanbusinessresearch.com

  18. 2006 – Another vintage year US$ Returns to African equity markets (2006) Average annual returns for 2006 of 32% (in US$), relative to 25% for South Africa, 29% for emerging markets, and 16% for G7 countries. Source: Local Stock Exchanges, African Business Research www.africanbusinessresearch.com research@africanbusinessresearch.com

  19. 2007 – Looking good for your money US$ Returns to African equity markets (9 months to September 2007) Source: Local Stock Exchanges, African Business Research www.africanbusinessresearch.com research@africanbusinessresearch.com

  20. Lose on the currency swing – Gain on the growth roundabout Equity returns in US$ since 1991 (excluding South Africa and Zimbabwe) Source: Local Stock Exchanges, African Business Research www.africanbusinessresearch.com research@africanbusinessresearch.com

  21. What about volatility? – “Give a dog a bad name” Standard deviation of annual returns (1995 – 2006) The risk from investing in Africa is similar to that of other emerging markets. The perception that Africa is inherently riskier is not supported by data Source: MSCI, African Business Research www.africanbusinessresearch.com research@africanbusinessresearch.com

  22. Risk – Return Ratio: How “Sharpe” is that? Sharpe ratio for Africa is 2.5x better than for emerging markets generally Source: MSCI, African Business Research www.africanbusinessresearch.com research@africanbusinessresearch.com

  23. You think I am a loser, wait till you meet my siblings Number of losing months (Jan 2000 to Sept 2007, 93 Months ) Risk of Loss for Africa is similar to other regions of the world Source: MSCI, African Business Research www.africanbusinessresearch.com research@africanbusinessresearch.com

  24. Historic Value At Risk – Always look on the bright side of life Outside the developed world, Africa has the lowest Historic VAR Source: MSCI, African Business Research www.africanbusinessresearch.com research@africanbusinessresearch.com

  25. Spreading equity culture reflected in rising turnover Annual traded volume has increased by 4x since 2000 Source: Local Stock Exchanges, African Business Research www.africanbusinessresearch.com research@africanbusinessresearch.com

  26. Trading Liquidity: “I am a foreigner, get me out of here” Daily Traded Volume for Africa (ex South Africa) There are stocks on the continent with reasonable trading liquidity. 32companies constituting 45% of the total market capitalisation trade more than $1 million per day. Over 140 stocks trade more than $0.1 million per day Source: Local Stock Exchanges, African Business Research www.africanbusinessresearch.com research@africanbusinessresearch.com

  27. Dynamics of economic reform We believe Africa is positioned here on the growth curve Africa is just beginning to realise the benefits of the economic restructuring of the 1990’s. Africa has had the pain, the gains are about to become evident 15 years ago, Africa would not have been able to cope with a doubling of energy prices. Despite recent doubling of oil prices few African countries have required balance of payments support from the IMF. The continent is less vulnerable to external shocks. Total output X Expected Output Private sector output Public sector output Cost of input Source: Olivier Blanchard; The Economics of Post-Communist Transition www.africanbusinessresearch.com research@africanbusinessresearch.com

  28. Would you invest in these countries? • A country recently endured a long and bloody civil war, the assassination of its president, a financial panic and an influx of poor immigrants United States of America Taiwan • A country formed from the ruins of a vanquished army forced from its historic homeland to a small barren island • A country divided after a long and destructive civil war and still technically at a state of war Korea • A country that started a regional war, suffered a humiliating defeat, heavy bombing that destroyed its infrastructure and without a history of civil liberties or democratic government Japan www.africanbusinessresearch.com research@africanbusinessresearch.com

  29. ABR: Who are we? Mapping the African Business Terrain www.africanbusinessresearch.com research@africanbusinessresearch.com

  30. What do we offer • Unparalleled access to financial information on African equities • Data-base of over 8,000 securities quoted on 22 stock exchanges in Africa • Commissioned research – bespoke reports, in-house periodical reviews • Regional knowledge base and experience • Cutting edge research methodologies • Large contacts with African companies, investors and policy makers • Independence www.africanbusinessresearch.com research@africanbusinessresearch.com

  31. Website offering: www.africanfinancialmarkets.com • The website is divided into six section:- • Company Analysis • Macro-economy and Politics • Pan African Equity Analysis • Currency Exchange Rate • Research • News Archive www.africanbusinessresearch.com research@africanbusinessresearch.com

  32. Research - Africa All-Share (ex South Africa) Index • The Index is a composite measure of the average performance of all stock exchanges in Africa excluding South Africa. It covers all companies listed on African Stock exchanges (excluding South Africa) that conform to a minimum size and trading liquidity requirement. • Index segmentation • Size (Large, Medium, Small company indices) • Economic sector (Financials, Services, Industrials, Utilities, Natural Resources) • Geographic segmentation (East, North, South, West, Sub-Saharan Africa) ABR calculates over 60 different pan-African equity indices www.africanbusinessresearch.com research@africanbusinessresearch.com

  33. Let’s start running “Every morning in Africa, a Gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed. Every morning a Lion wakes up. It knows it must outrun the slowest Gazelle or it will starve to death. It doesn't matter whether you are a Lion or a Gazelle... when the sun comes up, you'd better be running.” www.africanbusinessresearch.com research@africanbusinessresearch.com

  34. Conclusion: ‘If you see a bandwagon, you have missed it” • Contrary to perception Africa offers significant growth and profit opportunities • Africa is still under the radar of most investors and hence offers great opportunities to the early adopters • Future equity returns from developed markets are projected to be significantly lower than historic levels • Spreading equity culture and rising trading volumes • Returns outweigh currency depreciation • A credible and peaceful future of the world in the 21st century must include a positive future for Africa • Development of efficient financial markets is integral to the alleviation of poverty www.africanbusinessresearch.com research@africanbusinessresearch.com

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