How Africa can attract investment in 2021
Miguel Azevedo, head of investment banking for Middle East and Africa (ex South Africa) at Citi, offers his outlook for Africa’s capital markets in 2021.
Despite the impact of the pandemic, recent activity in Africa’s capital markets suggests that investor appetite for risk has not fully subsided. Côte d’Ivoire returned to international capital markets in November, raising €1bn ($1.2bn) with the first “post-pandemic” eurobond. At the start of January, Benin went to market with a €1bn eurobond, and a few days later the Bank for West African Development (BOAD) raised €750m. All three bonds were oversubscribed.
Miguel Azevedo, head of Corporate and Investment Banking for Middle East and Africa (ex South Africa), has been upbeat ever since he started covering the continent given the opportunities that it offers to entrepreneurs and investors.
It is part of his job to look at the upside potential and work towards making it possible, he says, but he does admit that market conditions are more challenging now in a Covid world, and naturally not as buoyant as they were five or six years ago. In any case the potential is there and many other things have moved in the right direction.
As proven by the Benin bond issuance, where Citi played the leading role, Azevedo believes there will be a return to debt capital markets for many African sovereigns as countries respond to the enormous needs for emergency financing highlighted by the pandemic. And for those looking at refinancing and restructuring their liabilities, there is plenty of capital out there looking for higher yields, he says.
Yet echoing fears that Africa is taking on an unsustainable debt burden to fund short-term liabilities, Azevedo argues that what the continent needs is “less debt and more equity; debt deals with short-term liquidity needs and equity deals with long-term solvability solutions”.
That’s where the massive need for additional corporate sector finance comes in. Privatisations, mergers and acquisitions and foreign direct investment all remain on the horizon this year, although activity could be muted, he argues.
He anticipates some new listings on the continent’s stock exchanges, albeit limited, and instead believes that the continent is more likely to see existing companies actively trying to grow their capital base by going to the markets. Why is this so? It isn’t a shortage of money, he notes, but a lack of conviction after investors were burnt by previous fundraisings promising strong returns.
Those companies brave enough to fundraise this year will need to show evidence of strong management teams, a strong market position, growth opportunities, good governance and diversification. If they can tick those boxes, they may find a willing partner in global companies who are generally more willing to take the long view.
“There are good companies out there that will list on the exchanges this year and those that do come to market will offer an opportunity for investors, because they will do so at attractive valuations… global companies who tend to take a long-term position on markets will also use this opportunity to acquire assets in different countries given that company valuations will be somewhat depressed,” he adds.
One particularly attractive story remains the long-planned liberalisation of the telecoms sector in Ethiopia, the only country with a population in excess of 100m still to liberalise its telecoms sector. Two telecoms licences and a stake in the stateowned Ethio Telecom are exciting interest from foreign telcos.
While the licences exclude ebanking and mobile payments – important future areas of growth – a successful conclusion of the programme will tell the rest of the world that Ethiopia is open for business in other sectors including financial services, argues Azevedo.
Yet to convince investors to come in on long-term projects takes time and requires trust building, Azevedo says. Governments, already highly leveraged, are unable to offer the guarantees they could previously.