African market reform continues

1. African market reform continues African capital markets follow the Emerging World Presentation by Des Mahony to the ASEA conference in Accra 27-29 October 2007

2. Africa is emerging Africa is emerging and is set to become an important global player Africa is the last frontier in emerging markets • According to the IMF emerging economies are typically: • countries with low to middle per capita income • that have undertaken economic development and reform programs and • have begun to "emerge" as significant players in the global economy

3. Africa is growing and saving Africa’s GDP growth rate has exceeded the world average for 7 year and this trend is accelerating Africa ex South Africa approaching GEM average African savings rates have risen faster than the rest of the world By the end of this year savings rates are expected to be 26.3%, more than 3% higher than the world’s average savings rate GDP growth rates (% y-o-y) Gross national savings (% of GDP) Source: IMF, African Alliance estimates

4. Investment is also increasing Africa’s investment rate is at almost 25% of GDP – a massive gain from 1996 levels Investment rates exceed those of the rest of the world Also helped by Foreign Direct Investment flows (FDI) Investment (% GDP) Investment as a % of GDP relative to global levels Source: IMF, African Alliance estimates

5. Foreign direct investment (FDI) flows FDI and GDP for Africa – excluding South Africa and African oil exporting countries Oil exporting countries excluded as these distort FDI flow numbers, but the largest economies therefore not included FDI doubled from 1990 to 2000, and has more than doubled in the last five years FDI is rising as a % of GDP New emphasis on infrastructure development will see this continue to grow African growth is broad based * Angola, Algeria, Egypt and Nigeria excluded Source: IMF,UNCTAD, World Bank, African Alliance estimates

6. Economic and financial sector reform need to be aligned The financial sector oils the economy Savings can be put to good work • African economies are improving • driven by increasingly better educated Africans • who increasingly demand improving political and economic systems • The financial sector provides the link between high savings and high investment rates • the financial sector has to keep up with the rapidly changing economies • provide mechanisms for efficiently allocating capital • Banks are changing the way they do business • less reliance on lending to governments • focusing on longer term funding to facilitate mortgages • moving into the lower (microfinance) sectors • Markets have changed enormously but reform must continue • Investors need improving markets • Companies need access to capital

7. African markets outperform Market performance indexed to January 2000 African markets have outperformed the world since January 2000 Although South Africa has outperformed both EMEA and Global Emerging Markets, Africa ex South Africa has substantially outperformed it Source: Bloomberg, African Alliance estimates

8. Diversification of risk for global investors Markets are completely uncorrelated to Global EMs, EMEA and South Africa African markets are uncorrelated Egypt has -0.05 to 0.15 correlation to other large markets in Africa • Low correlation with global equity markets (Jan 2000 to Sep 2007) Source: Bloomberg, MSCI, African Alliance calculations • Private equity opportunities provide further diversification • New opportunities from privatisation of state assets

9. Equity market background Global Emerging Markets account for 85% of world population, yet only one-quarter of GDP Recent strong market growth in Asian disguises the trend in Africa, where market cap is only 60% of GDP Market cap should start to anticipate GDP growth, as it has done in Asia But before this gap closes, capital market structures need to be strengthened Source: UN, IMF, Bloomberg, AGA

10. “Investable” African universe (ex SA) - market cap by sector Liquidity more important than size: “investable” universe assumes $30 000 trade per day >75% of market cap in four sectors The size of the primary sector in Africa explains much of this, but... …the next stage of market development must promote broadening and deepening of equity markets The likely economic growth will come from Utilities, Consumer, Tourism, Industrial… …markets will need to include these sectors to assist and capture this growth

11. African investable universe (ex SA) – market cap by country On our liquidity criteria, only 11 of 17 markets (ex SA) ‘qualify’ as investable …with 89% of the market cap in three countries In terms of capital market reform, these three (and SA) must take a leading role

12. Bond markets Bond markets in Africa have been held back by macro-economic instability But this is a thing of the past, and the outlook for currencies and inflation is favourable for debt issuance Will the emergence of infrastructure funds replace the need for debt issuance? • Bonds issued in 12 countries… …of which 8 have credit agency ratings • Total issuance $36bn… …of which $28bn is by governments • Weighted average time to maturity is 4.2 years • Bond markets need to reform in parallel to equity markets

13. Bond markets need Deepening of bond markets largely a function of national treasuries Regulatory reform will also help The elimination of cost based treatment of bonds in the pension industry • More trading - secondary markets important • More country and company ratings • More corporate bonds • Longer maturities • Tap issues • Fixed rate coupons

14. Investor and equity market requirements Market reforms will need to address these • Local and Global capital can be harnessed by efficient markets • Investors want to see: • certainty - of owning and selling stock • market liquidity • depth and breadth of securities and reflection of the economy • more and new products (derivatives) • fair and equal treatment • ease of trading • low cost of trading • Listed companies want to see: • ease of raising capital • efficient pricing • tax breaks for being listed • low costs associated with listing

15. How do we achieve this? Market players who take reform seriously and follow through will be the winners • Tax breaks to encourage more and varied listings • Encourage listings that reflect the economic mix • Lower trading and settlement costs • Negotiated brokerage • Lower statutory charges on higher turnover • More and varied products e.g. derivatives • Dematerialisation • Electronic trading • Information availability – both company and trading • Fair and equal treatment of all investors • Separate brokers from market oversight • Certainty and transparency around new primary issues • Ease of stock placements • Pension industry reform • More investment products e.g. unit trusts and ETFs

16. Questions