With the various threats to the Mauritius model caused by negative FATF and OECD listings, the question of “if not Mauritius, then where?” has been raised by many investors and managers in Africa. It is in this context that at the end of 2019, the World Bank and the CREPMF published proposed rules to create a legal framework for PE/VC funds and asset managers in the West African Economic Monetary Union region (WAEMU). WAEMU covers eight countries of West Africa, including the fast growing economies of Cote d’Ivoire and Senegal.
A Group of 30 report, published late last year, estimates that the world’s top economies will face a pensions shortfall of just over $5trn by 2028 and $15.8trn by 2050. It is anticipated that this shortfall will be even greater given the impact of the COVID-19 pandemic once this report is updated. The likelihood is that the pandemic has brought the crunch-point forward for many retirees.
The COVID-19 pandemic struck Africa later than other regions of the world, but its effect on African economies should not be understated. The World Bank has predicted that the continent will face its worst recession in 25 years, write Kwadwo Sarkodie (pictured), Partner, Ed Bentsi-Enchill, Associate, and Thomas Ajose, Associate, Mayer Brown.
Can you build wealth at times like these? The COVID-19 pandemic has undoubtedly derailed markets and economies across the board. It is raising questions about the viability of many industries and businesses which have been part of our everyday lives until now. There have been precious few places for investors to hide, and the impact on investor portfolios has been severe. Despite how uncomfortable the market mayhem makes us feel, it also provides the opportunity to build great future portfolios – provided we can distinguish noise from material information and overcome emotion, to act rationally and take a longer-term view.
Every 75 to 100 years, an event occurs that will forever define how generations to come live. This is our Black Swan event. According to Ray Dalio (legendary hedge fund investor) we are entering a global depression, not unlike what the world experienced in 1929 (hopefully cushioned by the various monetary and fiscal initiatives by the various governments). Many would say this is self-inflicted, i.e. this was not a systemic failure of capitalism but a choice of lives over livelihoods. How we react will largely define how well we emerge from this. Nothing will be the same again, hence we cannot go on with business as usual.
It is tempting to only see the negatives when it comes to South Africa (and other emerging markets), but when it comes to local sovereign bonds, there are several positive developments being overlooked in this time of fear.
Much has been said about the impact of COVID-19 on the global economy, and more frequently, it is beginning to be known as the worst recession since the Great Depression. Although we do not know how long the COVID-19 pandemic will continue to hurt the global economy, we do know that, at least at some point, things will normalise. It may be a ‘new normal’, but to some extent most industries will see a strengthening of demand and with it a revival of some much needed cashflow.
The COVID-19 outbreak has plunged the globe into chaos. We are in uncharted territory, from both a societal and a financial market perspective, and trying to predict outcomes is virtually impossible.
Despite current circumstances - dominated by the human and economic cost of Covid-19 - the African real estate investment cycle will return to its long-term trajectory of accelerated development, driven by economic fundamentals and demographics.
In Africa, reactions to the onset of Covid-19 have been varied, from full lockdowns in most of Southern Africa, regional lockdowns in some West African countries and just social distancing and nighttime curfews in some countries. Official statistics suggest that most of Africa has managed to keep infections levels relatively low, so far. As a result of the different responses, the economic impact has also been varied across the continent, but due to the impact of the virus on the broader global economy, most African economies are facing severe strain. Time will tell, which response was the most appropriate for risk that countries faced from Covid-19.
The exchanged-traded fund (ETF) structure has led to increased investment options within fixed income, and the African markets are a clear example of this. Over the past few years, several African ETFs have been introduced to the market, tracking indices provided by S&P Dow Jones Indices in South Africa, Nigeria, and Namibia, giving investors options to participate in this investment space. With transparent indices and tight-knit local ties, S&P Dow Jones Indices and ETF providers have opened asset classes that historically were only accessible to large and more sophisticated investors. Market segments such as high yield, emerging markets, and international markets, which were inaccessible just a few years ago, have become an investment opportunity for all market participants. In addition to accessibility, the yields of African sovereign bonds have tended to be higher than both investment-grade and high-yield corporate bonds in the US.
The evidence is clear: starting valuations are a very important predictor of long-term returns. However, this insight gets lost in times of market panic when all the attention goes to reducing portfolio risk. The lowest risk way of achieving satisfactory long-term outcomes, is to buy assets at attractive valuations. Ironically, this is often an uncomfortable approach.
Africa cannot go back to ‘business as usual’ when COVID-19 pandemic is over, writes Babatunde Omilola, Manager for Public Health, Security and Nutrition Division at the African Development Bank
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