OPPORTUNITIES IN ZIMBABWE DESPITE ‘MUGABE RULES’ -- Think Advisor

Savita Iyer-Ahrestani writing for ThinkAdvisor asks a question on the minds of many investors around the globe, "Is Robert Mugabe's health failing?" Many are waiting to see what will happen in the inevitable post-Mugabe Zimbabwe.

"Larry Seruma, chief investment officer and managing principal at Nile Capital Management, said Zimbabwe’s highly educated population—it has an adult literacy rate of 90%, one of the highest in Africa—is one of the country’s greatest strengths and a building block for the future.

“There is a silver lining in that whoever succeeds Mugabe will see the need to have a different environment and a need to change the growth profile of country,” he said. However, the current policies are counter-productive for Zimbabwe and frustrating for foreign investors, and they are affecting a number of Zimbabwe’s key industries, Seruma said, notably agriculture.

Several years of repossessed farms and land grabs have resulted in experienced Zimbabwean farmers leaving the country and taking their expertise elsewhere. Rampant corruption and weak institutions have exacerbated the situation, and while other African nations are now benefiting from Zimbabwe’s agricultural expertise, the country itself has gone from being a food exporter to a food importer and is facing a massive food security issue that’s a drain on an already stretched economy, Seruma said."

Follow the link to read the complete article, "Investors Can Find Opportunities in Zimbabwe Despite 'Mugabe Rules'

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"Nigeria's soaring economy has met its match: old-style politics"

Former Nigerian central bank governor Sanusi with MasterCared CEO Ajay Banga

"On February 20, President Goodluck Jonathan suspended central bank governor Lamido Sanusi amid the latter's claims that $20 billion in revenue was missing from the state oil corporation. The move sparked widening bond spreads and tumbling currency valuation in Africa's most populous state."

Jake Bright, Whitehead Fellow of the Foreign Policy Association, covered the complexity and complications of this event for Quartz, an Atlantic Media digital outlet. In Bright's article, Nile Capital Managements Larry Seruma is quoted as having said, "The market did not take his (Sansui's) suspension very well of for a number of reasons. Sanusi has been a good governor. He's been an inflation hawk. Current inflation is about 8%, the benchmark bank rate is about 12%, so you are getting a real rate of return of about 4% -- pretty unusual in frontier markets."

Bright wrote: "Foreign investor jitters immediately after the suspension led to a sell-off in Nigerian assets, a 3.2% one day drop in the naira, and an 11-basis point yield spike on Nigeria's 10-year eurobonds. Not all the blame rests with the Sanusi shake-up, though. Nigeria has been contending with the same economic flu affecting many emerging markets that have been dependent on US Federal Reserve policy and reacting to its taper

Nile's Seruma added, " As the Fed tapers, the interest differential between the high-yielding assets in Nigeria and developed market asset has shrunk. Because of that you are seeing more investors pull out of Nigerian equities and fixed income."

To benefit from reading the entire Quartz article visit "$20 billion and an ousted whistleblower threaten Nigeria's fragile, carefully crafted success story"

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from The Africa Report: Africa in 2064 -- an Afrocentric future

Illustration by Emeric Therund

"With an African tech boom amidst continental unity and a meltdown in Europe, Stephan Chan, Professor of International Relations, School of Oriental and African Studies, London, imagines that Africa could be like in 50 years."

"It is 2064 and the sun shines over the Mediterranean. African Union drones fly in the blue skies and automatically drop life buoys onto the waters below, where Greek workers, fleeing a country of unemployment and financial meltdown – the fifth Greek default on its loans since 2012, with no further bailout in sight – struggle to stay afloat after their boat sank into the lifeless sea."

"The European part of the West is finished.  The United States has returned to splendid isolation, and Africa is the new great star of global capital and international relations..."

For more of Professor Chan's vision click through this link to read "Africa in 2064 - an Afrocentric future."

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For Investors Heading For The Frontier: Active Management Adds

The once-vaunted BRICs have lost their mojo, at least temporarily, as the place to look for stock market diversification. Since April 2011, emerging market equities have generated negative returns.

Surprisingly, part of this void has been filled by the strong performance of frontier markets. In 2013, the gap between performance of the MSCI Frontier Markets Index (25.90 percent) and the MSCI Emerging Markets Index (-2.60 percent) was the widest since 2005.

For institutional and individual investors alike, frontier markets are becoming a viable asset class to include in a well-diversified portfolio, and high rates of economic growth are the main attraction. Of the 30 fastest growing economies in the world (measured by real GDP growth), 23 are frontier markets.

The easiest way to implement a frontier market allocation is to participate in an index fund. Just as investors flocked into emerging markets a decade ago through passively managed vehicles such as iShares MSCI Emerging Marketing Fund, they now are showing interest in frontier index funds such as iShares MSCI Frontier 100 Fund (FM). With a goal of tracking the MSCI Frontier Markets Index, FM has grown rapidly in recent months, surpassing $500 million in assets.
Buyer beware.

Three Advantages Of Active Management
Is an index fund the best choice for participating in frontier market growth?

We believe the dynamics of frontier markets favor active management over indexing. Nile Capital Management, one of the few firms to actively manage frontier market funds, has demonstrated three key advantages an active manager can identify and exploit in frontier markets.

1. Portfolio Stability – Nile seeks to identify well-managed companies operating on the African continent, and then hold their stocks over extended periods. In comparison, index funds can be relatively unstable. Currently, the top three country weights in FM are Kuwait (18 percent), UAE (17 percent) and Qatar (16 percent). However, in May the MSCI index methodology will reclassify UAE and Qatar from the frontier to the emerging category. Millions of dollars invested in FM will then be reshuffled among other frontier markets, for reasons unrelated to frontier market growth or company profitability. Since frontier markets are dynamic, index re-classifications occur frequently and can be unsettling to investors.

2. Diversification – About 54 percent of the weight of the MSCI Frontier Markets Index is in the financials sector. This does not represent the diverse economic activities that are driving frontier market economies, especially the three themes that we seek to include: natural resources; infrastructure growth and a rising consumer sector. Across the African continent, we see countries with uncorrelated economic cycles, and we are identifying attractive companies operating under diverse business models.

3. Population and demographics – The high economic growth of frontier market economies is directly related to population and demographic trends. Africa’s population, currently estimated at one billion people, is projected to double by 2040. The average age of the continent’s people is 21, compared to 45 for developed countries. The average GDP per capita in Sub-Saharan Africa is $1,400 compared to $30,000 for the Arab States of the Gulf Corporation Council. (GDP per capita in the US is $51,000).

Of course, it’s the younger generation that forms new households, creates families, and drives consumer sector growth. An active manager can emphasize countries with emerging consumer economies such as Nigeria and Uganda. In comparison, a frontier index fund may be heavily weighted toward more mature economies such as Kuwait, the United Arab Emirates, Qatar and even Saudi Arabia (in some classifications).

In summary, we believe the smartest way to invest in the frontier is to take a long-term perspective and focus on well-managed companies trading at attractive valuations. Our portfolio concentrates on about 30-40 companies, and we look for opportunities to identify businesses trading below intrinsic value. We are very comfortable with the valuations of our leading companies, some of which are not covered by any Wall Street analysts. Indeed, the frontier markets are much less “efficient” than developed or emerging markets.

We believe frontier market knowledge and in-depth research gives active managers an edge in these markets, relative to a passive indexed approach.

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Statoil, BG to Build Tanzania LNG Plant in Lindi, Minister Says

Bloomberg reported today that Statoil ASA (STL) and BG Group Plc (BG/) will build Tanzania’s first liquefied natural gas plant in Lindi and are due to meet with authorities about the project’s schedule and details in April. Production could start in 2021 or 2022 and investments could be $20 billion to $30 billion. Partners in the offshore blocks include Exxon Mobil Corp. (XOM), Ophir Energy Plc (OPHR) and Pavilion Energy Pte.

To read the entire article, click through here.

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German Development Minister: "For us, Africa is the continent of opportunities."

Bonn-based international broadcaster, Deutsche Welle recently interviewed German Development Minister Gerd Muller on the topic of Africa's role in the future of German development -- over the course of the interview Muller was quoted as saying,"For us, Africa is the continent of opportunities...the population will double in the next 30 to 50 years...this continent, which is 100 times bigger than Germany, is enormously dynamic."

For more of the Minister's thoughts on Germany's interest in trade development and investing in Africa, click on the following link to review the complete interview -- Gerd Muller: "For us Africa is the continent of opportunities."

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Bloomberg News: Lenovo to Expand in Africa as Smartphones Debut in Nigeria

Recently, Bloomberg reported that Lenovo Group Ltd., the world’s largest maker of personal computers, plans to expand its smartphone business in three west African countries this year as it builds on a surge in demand in Nigeria. The company may start sales in Ghana and Ivory Coast later in the year. “Smartphones are fast becoming a primary platform for work, entertainment and social networking” in Nigeria, said Graham Braum, Lenovo’s general manager for Africa. Given that Nigeria is Africa’s most populous nation with 170 million people is the next big market for Lenovo following a “successful” entrance in the United Arab Emirates and Saudi Arabia, he said.

To read the entire article, click through here.

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In One Chart, Here's Why Africa is the Hottest Growth Opportunity of the Next Century -- Business Insider

Click through to read why Business Insider calls Africa "the hottest growth opportunity of the next century."

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German Firms Seed Web Shopping in the Developing World - WSJ

It's not just the Chinese and the Japanese that are targeting the African continent for corporate expansion and promising investment returns, the Germans are getting in on the act, too...

From today's Wall Street Journal:

LAGOS, Nigeria—The message from his boss on the phone from Germany was straightforward, recalls Hendrik Harren, a former website manager in Africa: "I want you to build the Amazon of Nigeria for me."

The caller was Oliver Samwer, an Internet tycoon in Berlin who had already cloned American e-commerce businesses for Europe's market. By 2012, his focus was shifting to the developing world.

Mr. Harren found his new assignment daunting. "I had never founded an Amazon," he says.

Two years after the call, Nigerian men on motorbikes ply the streets of the chaotic megacity of Lagos delivering toothpaste, English soccer jerseys and women's wigs in a small and unprofitable, but growing, online shopping business.

To read the entire article, click through here.

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"What Makes Lagos a Model City"

In a recent New York Times Op-Ed column, Seth D. Kaplan, a professorial lecturer in the Paul H. Nitze School of Advanced International Studies at John Hopkins University, and the author of "Betrayed: Poltics, Power and Prosperity," posits that Nigeria is "arguably the worst run of the world's seven most populated countries." But interestingly, Kaplan asserts, Lagos -- Nigeria's largest city, seems to have turned a corner.
Nigeria, of all places, Kaplan writes, may be pointing the way to a strategy by which fragile states might begin to succeed. In other words, using Lagos as his primary example, Kaplan suggests cities can help save countries.
To get the full benefit of Prof. Kaplan's reasoning, follow this link to read "What Makes Lagos a Model City." 

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In Namibia, Home Buyers Are Entering Bidding Wars for Scarce Housing -- Wall Street Journal

According to a recent report by the Wall Street Journal's Devon Maylie, Namibia, with a population of 2 million, ranked fourth globally in 2012 for the biggest housing price increases, after Hong Kong, Dubai and Brazil, according to South Africa-based First National Bank. Although price gains eased a bit in 2013, average prices still are double what they were six years ago. The rapid increase in property valuations is pricing many first-time buyers out of the market and increasing competition for the meager supply in the $100,000 to $300,000 bracket that is available. The average home price in Namibia today is $120,100, six times as high as the average price in 2000 of $18,800, according to the FNB data.
For more, click through this link to read Maylie's WSJ coverage in its entirety.

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A Giant Awakens: Inside Africa's Economic Upsurge

“When Kirinya drops into the iHub café to buy a latté, he pays his bill of 100 Kenyan shillings (€0.85 or $1.16) by text message. First he types in the café's telephone number and enters a PIN. Then he hits "send" and the transaction is complete.”

In roughly a decade, Africa has gone from being labeled "the hopeless continent" to enjoying an unprecedented boom. In a three-part series, SPIEGEL Online explores this transformation -- its drivers, winners and losers -- and asks if it can last.

Here are the facts beyond fiction:

1. No other continent has developed as rapidly in the last decade as Africa, where real economic growth was between 5 and 10 percent annually. In oil-rich countries, such as Angola, it was a possibly record-breaking 22.6 percent in 2007.
2. A World Bank study shows that 17 of the 50 national economies currently displaying the greatest economic progress are in Africa.
3. China the world's largest economy has overtaken the West to become Africa's most important trade partner. The volume of Sino-African trade amounted to nearly $200 billion last year.
4. Many countries have become better governed, and Africa as a whole is more peaceful and democratic than it once was.
5. At the same time, a revolution is taking place in the information and communications sector, as Africa connects itself to the world via modern data highways. Nowhere is the spread of the Internet as all-encompassing as it is between Cairo and Cape Town, and nowhere is mobile-phone use increasing as explosively. There are now 650 million African mobile-phone users -- more than in North America.
6. By 2050, at least 2 billion people will live in Africa, accounting for one quarter of the world's labor force.
7. Child mortality, illiteracy rates and AIDS infection rates are declining, and life expectancy has increased by 10 percent.

To access the SPIEGEL Online series, follow this link -- A Giant Awakens: Inside Africa's Economic Upsurge.

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Madiba Laid to Rest

Alexander Joe/ AFP/ Getty Images

From CNBC:

South Africans united in mourning for Nelson Mandela on Friday, but while some celebrated his remarkable life with dance and song, others fretted that the anti-apartheid hero's death would leave the nation vulnerable again to racial and social tensions. "We will spend the week mourning his passing. We will also spend it celebrating a life well lived," said South African President Jacob Zuma.

To read the article in its entirety, follow this link to the CNBC coverage. 

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More on the Political and Economic Implications of Mandela's Passing

Nelson Mandela, 1918 - 2013

Political and Economic Implications

Our thoughts on the political and economic implications of Nelson Mandela’s death on the South African economy are as follows:

On the Economic Impact

• Has been out of public life since middle of 2000’s
• This event has largely been foreseen for sometime
• He has not been contributing to SA public policy for a very long time
• There has been no impact on the stock market, in fact the market is up today – not related to the event.
• The South African economy continues to struggle – slow GDP growth (1.9% in 2013) and 7% Current Account deficit – (the economy continues to rely on foreign inflows to fund the CA deficit).
• The bad news has already been priced in the market – the Rand is down 22% versus the dollar in 2013.

On the Political Impact

• Mandela inherited high unemployment, poverty and inequality after centuries of apartheid – and the current ANC government continues to face similar challenges
• ANC government is failing to deliver services to the population and as a result there are constant strikes for ever increasing pay and wages
• Recently, there have been serious doubts raised about the competency of the government, with some reports questioning the integrity of many government officials
• South Africa will soon go through national and municipal elections on or around first quarter of next year, and its anticipated that the ANC will win, albeit with a shrinking majority relative to prior years
• Recently, some divisions within the ANC have surfaced – with indications that some groups may break away from the ANC coalition.  We don’t see strong evidence for an imminent split; however, there is a risk now that Mandela will no longer be there to exert his considerable influence on the outcome.

Finally – on the potential for violence or riots.

We see little risk for violence or riots as a result of Mandela’s passing.  Here is why –

• SA has a strong constitution that has been followed by the government
• SA has a robust financial system that was tested after apartheid ended in 1994
• The media is free and unrestrained -- there is no political or governmental interference
• In the early 1990’s, the country came close to a civil war – between the Inkatha Freedom Party, from Kwazulu Natal and the ANC – but since elections in 1994 the tensions have reduced.  In fact, the ANC has been winning elections in the Kwazulu Natal region with the majority of people voting for the ANC

As ever, we shall miss Madiba!  R.I.P!

Larry Seruma

Portfolio Manager

“It always seems impossible until it’s done.”

Nelson Mandela, 1918 - 2013

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CNBC: Will South African Politics Change After Mandela?

I spoke to CNBC last evening about the sad passing of Nelson Mandela, and the economic and political implications for South Africa.

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Mandela 1918 - 2013

I was interviewed late last evening by CNBC about Nelson Mandela's death -- what it  means for South Africa, and the rest of Africa.

I offered my two cents -- but it's tough to describe his legacy, his accomplishments -- he was a hero, courageous, patient, and strong. He was a mentor -- and the glue that united blacks and whites in South Africa. He was a model for all African leaders, all leaders everywhere, and his legacy will forever be felt. South Africa will continue with the democracy he founded, and the institutions he forged with his ability to bring people together during the reconciliation process.

Here at Nile Capital, we shall deeply miss Madiba!

( For the full interview and my comments, check back. We'll post it when available.)

Bloomberg: Porsche and Rolex Lead Luxury Invasion in Nigeria

Bloomberg reports that high-end luxury brands are establishing shops in Nigeria, looking to cater to the country's top spenders - "As Nigeria's economy grows -- 6 percent this year -- so does the wealth of some of it's citizens." Watch the video for the full story.

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Fitch: Sub-Saharan Africa Resilient to Fed Tapering; Sees Strong Growth Continuing

In its recently released Sub-Saharan Africa (SSA) Credit Overview, Fitch Ratings says that it expects average GDP growth for the 16 countries rated by the agency to rise above 5% in 2014, despite more subdued emerging market growth and less favorable commodity prices. The agency also does not expect Fed tapering to place significant pressure on SSA countries' domestic and external financing capacity.

Fitch expects SSA to continue benefiting from rising foreign direct investment (FDI), particularly in emergent oil and gas producers like Mozambique, Kenya and Uganda. Public infrastructure spending will trend upwards, as governments gain access to new sources of funding and on improved implementation capacity. Rising public sector wages in a number of countries, combined with improving access to credit, will support private sector consumption.

Follow this link to get the full story from FitchRatings.

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