Africa’s economy on the rebound

South Africa – the home of Investec, the partner of Raiffeisen Capital Management – is playing host to a major sports event in the coming weeks. And with all eyes trained on Africa right now, we would like to take this opportunity to discuss some of the economic aspects of the “Black Continent”, which remains to this day uncharted territory for many investors.

For months now, South Africa has been gearing up for the Football World Cup, and on 11 June the ball will get finally rolling in this spectacular mega-event. In the recent past, the country has featured prominently in international headlines, with stories on World Cup-related infrastructure projects and multi-week special reports by the major TV broadcasters. For example, feverish work was underway in South Africa to build the new stadium in Cape Town, with this project finally completed around the turn of the year, well before the opening of the World Cup. The expensive security measures for the event reflect the concerns about the high crime rates. Thanks to these measures, the South African tourism industry is hoping for long-lasting advertising benefits from the World Cup, showcasing the country as a safe place to visit.

Africa’s economy is clearly on the rebound right now: since 2001, the continent has grown faster than the global economy and beaten average growth in the Emerging Markets as well. Growth rates in African countries last year were around two per cent on average, and are expected to be twice as high this year already. The African continent was one of the few regions in the world that emerged relatively unscathed from the financial crisis. For example, South Africa was hardly affected at all by the sub-prime crisis. One factor behind Africa’s economic upswing is the robust demand for commodities from Asia. Angola, for example, has advanced to become China’s largest oil supplier. The spread of democracy and the stability it brings has raised investors’ interest. Chinese companies have long since bought into strategically important sectors such as mining and banking in the southern part of the continent. South Africa’s Standard Bank, market leader in Asia, is owned in part by the largest Chinese bank. Growth is also being fuelled by domestic consumption and service sectors such as telecommunications. Of course, South Africa still faces massive challenges as well: along with the pervasive crime, other critical factors include the enormous economic damage caused by the AIDS epidemic and the oppressively high level of unemployment, which is unofficially well over 40%.

All in all, there are 16 active, independent stock exchanges operating in Africa, with almost 1,500 listed companies. In 2009, market capitalisation was USD 631 bn; for the same period, the leading JSE Top-40 index for the largest and oldest bourse in Johannesburg posted an increase of 30%. Those wishing to invest in South Africa will find Raiffeisen-EmergingMarkets-Equities to be a suitable investment tool. Roughly 10% of the fund’s volume is invested in South Africa, with the rest broadly spread across the global Emerging Markets.

Investec, Raiffeisen Capital Management’s cooperation partner responsible for managing global and regional equity products, is the largest capital investment company in South Africa, with more than EUR 28 bn in South African assets and total assets of EUR 46.4 bn under management, as well as one of the main sponsors of the Football World Cup.

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