By Ed Cropley, African Investment Correspondent
JOHANNESBURG, May 19 – The “long-term play” mantra that accompanies equity investing in frontier Africa is wearing decidedly thin.
In anybody’s book, five years is reasonably long-term, yet since 2006, when stock markets such as Nigeria and Kenya first started appearing on the radar of international investors, the region’s performance has been at best underwhelming.
When translated into dollars, the depreciation of various local currencies makes the assessment look downright dismal.
“It’s become a tough sell,” said John Mackie, head of Africa investment at Stanlib in Johannesburg, one of the region’s biggest specialist investors with $300 million under management.
“People who’ve had their money invested for the last three years — it’s a little hard to look them in the eye and say ‘Double up and take the long-term view, this is a great story’.”
A 2008 banking bubble and spectacular crash in Nigeria, as well as fallout from that year’s rich-world global financial crisis, muddies the three-year picture in what is meant to be the continent’s most exciting prospect, given its 140 million population and huge energy reserves.
But even on a five-year view that irons out the banking bubble, the results for Nigeria are not pretty, and clearly show that pacey economic growth does not necessarily translate into strong corporate returns.
As a basic guide, $100 invested in the Nigerian stock market in 2006 would now be worth $89.50, thanks to a 17 percent drop in the naira against the dollar and an index that has managed to gain just 8 percent.
Excluding South Africa, a fully fledged emerging market, the only other sub-Saharan bourse big enough to attract serious investor interest is Kenya, where the picture is equally dour.
Since 2006, Nairobi’s bluechip index has trodden water, while the shilling has lost more than 16 percent against the dollar, turning your $100 investment into $87.50.
All that contrasts with a 15 percent return for investors in the U.S. Dow Jones industrial average, while anyone who stuck their savings in South African stocks over the same period would would be a whopping 64 percent to the good.
Source: Reuters Africa newsletter
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