How do global investors and major banks currently view Africa?
It is clear that there is a perceptible transition in the rate of progress on the African continent. The era of robust growth is giving way to a period of muted progression. Some countries are facing currency devaluation and budget deficits due to falling commodity prices and are therefore forced to make massive adjustments. But the key factors to consider when analysing Africa are the high population growth, urbanization and, most importantly for me, the resilience and entrepreneurial spirit of Africans in general. Africans find energy and imagination to overcome all obstacles and adapt to any new set of circumstances, it’s great. What we see in East, West and North Africa is a source of optimism.
How is Citi approaching the rising risks associated with African public and corporate debt?
I would not look at it in terms of rising risk. As an investment banker, I prefer the risk-return approach. Africa offers high returns that correspond to a certain level of risk. The continent faces internal and exogenous risks. The latter are linked to rising interest rates in the US and Europe, prompting global investors to disinvest from frontier markets and repatriate funds to markets of origin. Endogenous risks are related to the policies and choices of governments that should not borrow to finance the deficit in operating budgets, but rather invest. The market distinguishes between those borrowing to finance a specific project and those borrowing to maintain operating expenses. Rational States and entities with clear procedures and concrete projects will find it easy to raise funds. The market has an appetite for rational risks.
So, no cause for worry as to potentially disaffected investors with regards to African public and private securities?
Not at all, and I’ll give you two recent examples demonstrating that fund-holders make a clear distinction between good and bad risk in Africa. Two weeks ago (NDRL: the issue was carried out on February 21, 2017), Citi accompanied the federal state of Nigeria on a $ 1 billion sovereign bond issuance, oversubscribed at more than 7.5 times, despite recurring issues around the depreciation of the country’s currency, liberalization and economic imbalances. But the government managed to explain to investors its vision and the rationale behind its development choices. This is the first time that a country in sub-Sahara Africa has been able to subscribe to a loan written over fifteen years. This is a strong signal from investors. Similarly, last November, IHS Towers, a Nigerian group involved in telecom infrastructure, issued an $800 million corporate bond that was fully subscribed. This is the biggest corporate bond issue in sub-Saharan Africa outside of South Africa. Investors are motivated by business models and rational choices that determine the profitability of projects. This example shows the attractiveness of infrastructure projects on the African continent. This is basic infrastructure offering yield – according to the law of decreasing returns – more interesting than other categories of infrastructure.
How do global investors and Citi view French-speaking Africa?
There is no difference, in my opinion, between Francophone and Anglophone Africa. Investors seek well-managed markets, with a business-friendly environment, a guarantee of investor protection and monetary stability. In sum, a number of attractive criteria for investment. Sometimes, certain countries are viewed more favourably than others. The African countries that currently attract the most interest from investors are Senegal and Côte d’Ivoire. If these countries take off, the others will follow in their wake. I would also mention Ghana which enjoys a favourable outlook following recent political change and the coherent choices made by the new government. The government’s priority to stabilize the local currency – the cedi – was appreciated by investors.
How does Citi stack up in the continent’s M&A market?
I will be objective. We work with our African partners, helping them to develop projects and access international financial markets by issuing bonds, shares or by seeking partners. Conversely, we have global clients interested in Africa – a continent of opportunities – looking for local partners with whom to do business. Our role is to connect these different profiles and to accompany our clients, African and global, and help them achieve their objectives. This approach is well illustrated by the deal we concluded two weeks ago in East Africa with Japan’s Kansai – the world’s leading automotive paint manufacturer – which acquired a group of companies in Tanzania, Uganda and Kenya. These are aspects of our role. Three weeks ago, we helped Fairfax raise $ 500 million to invest in Africa. And we hope to help them find partners. We aim to accompany our clients and ensure maximum client satisfaction.
Are you the leader in M&A in Africa?
This is not the most important criterion in our view. Our mission is to provide a number of services to our customers. Our action is appreciated over time. We have been operating for over 40 years in Senegal and on average 25 years in most of the countries where we are present. It is the extensive experience and a know-how developed by our teams. As for the ranking, it is not the most relevant criterion. I would we had a good year in 2016. For 2017, the projections are more optimistic. After a correction in 2015-2016, Africa should take off in 2017. There will be more deals, more mergers and acquisitions and more transactions this year.
What are the deals expected in 2017?
We expect more transactions in 2017. The level of confidence is back. Over the five year period, 2013 and 2014 were fantastic years. 2014 and 2015 were years of adjustment. I think there are more transactions on the stock market in 2017. We did not see much in sub-Saharan Africa last year. I think there will be more transactions involving investment funds providing capital to African companies. The finance, telecoms and sectors targeting consumers will I believe be the most sought after by investors. The market will be more selective overall but remains favourable to good projects.
By Adama Wade