High returns, liquidity woes in Africa

LONDON – Funds which have been invested in Russia and eastern Europe are eyeing African markets for richer pickings, but size and liquidity can be a stumbling block, a senior official at a new Africa-focused bank says.

London-based Medicapital received Financial Services Authority authorisation in mid-May. It is owned by the second largest Moroccan private bank BMCE and is focusing on the North and central countries of Africa, most of them French-speaking, the bank’s head of treasury and capital markets Yassine Benjelloun told Reuters in an interview.Benjelloun said that within a few days of starting business, the bank found 45 investors interested in capital market deals in Africa, attracted by the higher returns available in African markets.Over 80 per cent of the investors he spoke to were emerging market funds that have traditionally invested in countries like eastern Europe, Russia and former Soviet states.”They are cross-over investors, now they want to go to Africa,” Benjelloun said.The other 20 per cent were global funds with wide mandates.Low interest rates and large piles of cash globally have reduced the yield premium which investors typically got for investing in the more established emerging markets.This has encouraged a move towards the so-called frontier markets, which include many African countries, Bangladesh, Pakistan and Colombia, analysts say.LOW LIQUIDITY One sticking point for many potential investors in Africa is the lack of liquidity on local stock exchanges.Benjelloun said Tunisia transacted only around US$2-3 million a day on its exchange, but Morocco and Nigeria posted a more healthy US$30-100 million.There is also a problem that deals tend to be small.”There is a lot of structured tailor-made stuff in Africa, private placements, but size is an issue,” Benjelloun said.Benjelloun said Medicapital was looking to offer project finance and debt finance deals, as well as equity deals.Benjelloun said the current lack of correlation between African stock markets and more established emerging markets, like China, added to Africa’s appeal.”When Chinese shares fell in February, people in Morocco were saying ‘what China move?’” A sharp slide in Chinese stocks helped trigger widespread falls in emerging markets earlier this year.Medicapital, set up with US$175 million capital, currently has 17 front-office staff among a staff total of 45 and its area of operations is likely to include Tunisia, Senegal and the Ivory Coast, Benjelloun said.Benjelloun joined Medicapital after 12 years at Goldman Sachs, where he worked in project finance.Nampa-ReutersIt is owned by the second largest Moroccan private bank BMCE and is focusing on the North and central countries of Africa, most of them French-speaking, the bank’s head of treasury and capital markets Yassine Benjelloun told Reuters in an interview.Benjelloun said that within a few days of starting business, the bank found 45 investors interested in capital market deals in Africa, attracted by the higher returns available in African markets.Over 80 per cent of the investors he spoke to were emerging market funds that have traditionally invested in countries like eastern Europe, Russia and former Soviet states.”They are cross-over investors, now they want to go to Africa,” Benjelloun said.The other 20 per cent were global funds with wide mandates.Low interest rates and large piles of cash globally have reduced the yield premium which investors typically got for investing in the more established emerging markets.This has encouraged a move towards the so-called frontier markets, which include many African countries, Bangladesh, Pakistan and Colombia, analysts say.LOW LIQUIDITY One sticking point for many potential investors in Africa is the lack of liquidity on local stock exchanges.Benjelloun said Tunisia transacted only around US$2-3 million a day on its exchange, but Morocco and Nigeria posted a more healthy US$30-100 million.There is also a problem that deals tend to be small.”There is a lot of structured tailor-made stuff in Africa, private placements, but size is an issue,” Benjelloun said.Benjelloun said Medicapital was looking to offer project finance and debt finance deals, as well as equity deals.Benjelloun said the current lack of correlation between African stock markets and more established emerging markets, like China, added to Africa’s appeal.”When Chinese shares fell in February, people in Morocco were saying ‘what China move?’” A sharp slide in Chinese stocks helped trigger widespread falls in emerging markets earlier this year.Medicapital, set up with US$175 million capital, currently has 17 front-office staff among a staff total of 45 and its area of operations is likely to include Tunisia, Senegal and the Ivory Coast, Benjelloun said.Benjelloun joined Medicapital after 12 years at Goldman Sachs, where he worked in project finance.Nampa-Reuters