De-correlation boosts Francophone markets
By Luca del Conte | Published: 01 October, 2009
Africa’s growth performance during the past three years has been the best in more than three decades, and unlike past cycles where boom was usually followed by bust, African growth appears more stable now. Following the surge in emerging markets’ interest over the past decade, African stock markets started to take off in early 2006; although starting from a low base, they have begun to help finance the growth of African companies and continued to offer broader economic benefits.
Historically investors and the media have focused more on the Anglophone side of the continent vs. the Francophone, as the English speaking nations – or at least, a great majority of them – met all the big picture-themes around which this last frontier of markets was presented: abundance of commodities and mining resources, large and rapidly growing populations, an historical “openness” to capital markets, and, of course, a language more apt to the investment business world.
Francophone Africa is only recently starting to gain relevance, and its lower profile appears to have “protected” its stock markets and domestic economies from the tsunami of the credit crunch. It is interesting, therefore, to look at the three key Francophone Africa stock markets: Morocco, Tunisia and Côte d’Ivoire. In terms of population it is surprising to most observers to note that Africa is the continent with most French speakers in the world, with north of 100m people in 30 countries speaking the language.
Many comparisons could be used to show differences between the two regions, however, to equities investors one example speaks for all: Anglophone Africa’s oil exporting behemoth Nigeria, with a $170bn economy and $40bn in foreign exchange reserves has one of the most popular equities stock exchanges in the region for both domestic and foreign institutional investors, with a $40bn market cap and $15m traded a day, and Francophone Africa’s oil exporting behemoth Algeria, with a $130bn economy and $140bn in reserves has a small domestic stock exchange with two quoted stocks, which rarely trade, and is closed to foreigners. This explains the lack of “media-time”
Now look at Francophone Africa’s stock markets and how they survived the credit crunch: looking at the north we have Morocco (33m population) and Tunisia (11m population). These have very different social and culture characteristics, but a few key common themes helped bring them extraordinary strengths in the face of the global recession: very conservative central banks that have been for years working on maintaining low inflation rates (sub-5 percent) and monitoring banking stability; currencies virtually pegged to the euro (the EU is their biggest trading partner) and not fully convertible; governments which have proactively worked on moving GDP’s dependence away from agriculture and phosphate exports and into services; and a growing middle-class developing at sustained levels.
Both Casablanca ($60bn market cap; $20m traded daily) and Tunis ($7bn market cap; $4m traded daily) exchanges are dominated by domestic institutions and retail giving both markets a “de-correlated nature”. Foreign investors have naturally entered through the years in all the well-known big plays of banks, telcos and cement, but have rarely been more than 15 percent of local daily trading and – even though Morocco had a slightly negative run due to a sell-off on real estate and the banks – they have both continued on their positive run since 2004.
South of the Sahara we encounter the other block of French-speaking West African countries, known, on economic-terms as the UEMOA (the economic union), with a common currency (the CFA pegged to the euro), a regional central bank and 50 percent of their reserves held by the French central bank. Although the region has had outbreaks of civil strife and wars, it has shared a degree of economic stability, with stable inflation and GDP growth, albeit at rates below its potential as compared to its Anglophone neighbours. The two largest countries by GDP, Senegal and Côte d’Ivoire, share a variety of energy and soft commodities sources and are fast developing their services sector.
The region is represented by the Côte d’Ivoire stock exchange, the BRVM, which acts as a hub for the whole region – the most popular stocks being telco, financials and agri-industrial companies. The exchange lacks scale and custody services are sub-optimal, but once again, its “de-correlated” nature has helped keep institutional investors’ attention alive also during the crisis.
Does Francophone Africa have a chance to compete for much larger foreign funds on the international stage in the next three years? They today represent the region whose focus of the last five years has been: banking stability, mild inflation, investment into infrastructure and services, and a stronger middle-class – investors since the Lehman debacle find this very exciting.
Luca del Conte is executive director of treasury and capital markets at Medicapital Bank
