Market snapshot: Africa

What's been happening in our markets?

Markets in Africa during the second half of 2018

Here we call out the biggest macroeconomic themes in the second half of 2018. Drawing on our own data and analysis, information from third parties, as well as the views of our experienced teams, we provide a unique view on our core markets in the region.

By Taylor Ruan.

 

Macro enviroment

Growth continues

Economic growth in Sub-Saharan Africa continued and is estimated to have reached 2.7% in 2018 (Table 1). This upward trajectory was in the face of significant oil price fluctuations due to Saudi Arabia’s oversupply. Consequently, oil exporting countries such as Nigeria and Angola suffered economically.

The Continent’s economic outlook is mixed. However, we are especially encouraged by:

  • Growth in East and West Africa, where some of the world’s fastest-growing economies are located, such as Ethiopia and Ghana.
  • The recent recovery in oil prices, which is boosting African oil exporters and related industries such as power transmission and infrastructure.
  • The growing momentum of commercial investment, consumer demand and net exports, which are all key drivers of sustainable economic growth in Africa.

 

Table 1: Sub-Saharan Africa economy: Forecast summary

Real GDP Growth (%) at market price2016A2017A2018E2019F2020F2021F
Sub-Saharan Africa (SSA)[1]1.32.62.73.43.63.7
SSA ex. Nigeria, South Africa, and Angola4.34.74.75.45.45.4
Oil exporters[2]-0.71.41.72.92.82.8
CFA countries[3]2.93.33.84.94.74.6
SSA3-0.80.91.11.92.12.1
Nigeria-1.60.81.92.22.42.4
South Africa0.61.30.91.31.71.8
Angola-2.6-0.1-1.82.92.62.8

[1] GDP at market prices and expenditure components are measured in constant 2010 U.S. dollars. Average including countries with full national accounts and balance of payments data only. Excludes Central African Republic, São Tomé and Príncipe, Somalia, and South Sudan.

[2] Includes Angola, Cameroon, Chad, Republic of Congo, Gabon, Ghana, Nigeria, and Sudan.

[3] Includes Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Republic of Congo, Côte d’Ivoire, Equatorial Guinea, Gabon, Mali, Niger, Senegal, and Togo.

 

Political uncertainties may impact economies

There are 18 national or presidential elections taking place in Africa throughout 2019 (Table 2), including those in the continent’s largest economies, Nigeria and South Africa. Undoubtedly, political tensions will rise and may negatively impact investors’ sentiment towards Africa. We highlight the following political changes as key to the continent’s stability:

  • February 2019 saw the re-election of Nigeria’s president Muhammadu Buhari, who recently announced plans to sell shares in oil ventures with international companies to accelerate his country’s energy reforms.
  • In the Democratic Republic of the Congo, tensions have heightened following the controversial election that took place there at the end of 2018.
  • Zimbabwe’s policy-related macroeconomic instability, funding shortages and inadequate infrastructure continue to severely constrain hopes for the country’s return to stability.
  • The terrorist attacks which took place in Nairobi could further weaken Kenya’s investment climate.

Countries such as Botswana and Ghana maintain a relatively healthy political environment. As such, their economies are comparatively stable.

 

Table 2 : List of national/ presidential elections in Africa in 2019

Parliamentary electionPresidential election
CountryLast electionNext electionLast electionNext election
AlgeriaMay 20172022Apr 2014Apr 2019
BotswanaOct 2014Oct 2019
CameroonSep 2013Oct 2019Oct 2018Oct 2025
GuineaSep 20132019Oct 20152020
Guinea-BissauApr 2014Mar 2019
LibyaJun 2014Jun 2019
MadagascarDec 2013Mar 2019
MalawiMay 2014May 2019
MaliDec 2013Apr 2019Jul 20182023
MauritaniaNov 2013Jun 20142019
MauritiusDec 20142019
MozambiqueOct 2014Oct 2019
NamibiaNov 2014Nov 2019
Nigeria2015Feb 2019Apr 2015
SenegalJul 20122019Feb 2012Feb 2019
Somalia2016Apr 201920172019
South AfricaApr 20142019
TunisiaOct 2014Oct 2019Nov 2014Dec 2019

Private Equity Market

Fundraising climate remains challenging

Africa’s fundraising climate continued to be challenging throughout 2018, directly related to the slowdown of growth in emerging markets generally. EMPEA reported an increase in funds raised in Africa, rising from $2.3bn in 2017 to $2.8bn in 2018.  However, this remains well below 2015’s high of $4.5bn and the overall investment landscape is not encouraging.  In the first three quarters of 2018, $1bn was raised in Africa – which represents a 42% year-on-year decline, highlighting the fundraising challenges.

Political uncertainty will continue to have a negative impact on fundraising in 2019. However, venture capital looks set to be comparatively attractive to investors, spurred by growth in the technology sector in Sub-Saharan Africa.

Africa Fundraising and Investment: 2014-2018

Source: EMPEA

Deal flow continuously declined in recent years

Deal flow remained at the same level in 2018 compared to the year before. However, both 2017 and 2018 saw a 15% decline compared to 2016.  Last year fewer buyout deals took place across the continent compared to 2017, while growth deals saw decline in both 2017 and 2018 – appetite from strategic buyers waned due to the uncertainty in regional economies and a challenging exit environment.

Figure 1: Deal flow in Africa (number of deals) – 2010 to 2018

Despite this, we have continued the deployment of our funds through flexible and bespoke investment solutions.  CDC contributed more than 5% of all capital raised by funds targeting the African region with vintages between 1991 and 2018 and have invested in approximately 22% of all funds that have reached financial close during the same period.

Public Market

Prepare for mid-term market volatility in Africa

The MSCI indices show that the African equity market declined significantly in 2018. This reflected investors’ concerns over domestic political uncertainty as well as the continuous slowdown in emerging markets. The strong US dollar and the US-China trade dispute continue to weigh on investors’ risk appetite.  We have observed a minor recovery in African markets in early 2019 and anticipate mid-term volatility.

Currencies in major African currencies are estimated to further depreciate in the mid-term, except for the CFA Franc and Egyptian Pound, according to EIU (Figure 2).

CDC, as a long-term investor, will continue supporting businesses in the continent despite market volatility.

Table 3: MSCI returns by region/ country (%) – as at the end of December 2018

Index (USD terms)1 Month3 Months6 Months12 Months24 Months
MSCI EFM(2.9%)(7.6%)(9.6%)(16.6%)11.8%
MSCI EFM Africa(0.8%)(4.1%)(12.2%)(25.6%)(2.0%)
MSCI EFM Africa – Small Cap(2.6%)(6.2%)(11.7%)(25.2%)(13.4%)
MSCI FM Africa(1.5%)(4.1%)(13.5%)(16.1%)1.6%
MSCI FM Africa – Small Cap1.0%(6.2%)(17.4%)(20.4%)(2.5%)
MSCI South Africa3.0%(2.8%)(7.6%)(14.6%)2.9%
MSCI South Africa – Small Cap0.2%(4.5%)(3.8%)(14.3%)(11.7%)
MSCI Nigeria0.4%(3.7%)(17.1%)(17.4%)23.4%
MSCI Nigeria Small Cap4.5%(4.5%)(24.4%)(23.1%)12.1%
MSCI Kenya(7.5%)(8.6%)(23.2%)(16.9%)8.6%
MSCI Kenya Small Cap(1.4%)(3.4%)(18.8%)(21.8%)6.6%

Source: MSCI

Table 4: MSCI FM Africa return by sector (%) – as at the end of December 2018

Index (USD terms)1 Month3 Months6 Months12 Months24 Months
MSCI FM Africa(1.5%)(4.1%)(13.5%)(16.1%)1.6%
MSCI FM Africa – Communication Svcs(3.9%)(7.6%)(16.3%)(11.8%)3.5%
MSCI FM Africa – Consumer Staples(0.6%)(3.2%)(15.5%)(20.3%)(16.2%)
MSCI FM Africa – Energy8.7%2.1%(0.5%)(3.1%)17.1%
MSCI FM Africa – Financials(1.9%)(4.0%)(12.9%)(10.7%)20.6%
MSCI FM Africa – Materials4.2%0.2%(13.0%)(19.2%)(16.2%)
MSCI FM Africa – Utilities1.2%1.2%0.2%(5.6%)20.6%

Source: MSCI

Figure 2: Currency movements – rebased at 31/12/2000