Time to Invest in Africa and Africa’s Capital Markets, World Bank Vice President Says

World Bank Vice President for Africa Obiageli Ezekwesili delivers remarks at the London Stock Exchange on October 6. Photo: Herbert Boh, The World Bank The World Bank’s Vice President for Africa Obiageli Ezekwesili called Thursday from the London Stock Exchange for investors worldwide to invest in Africa and its budding capital markets. “Africa has taught the world a lesson in macroeconomic reform and stability,” Ezekwesili told the audience at an African Investment Summit hosted at the Stock Exchange. She urged investors who are in search of the right market at a time of growing fears of a global recession to “rediscover Africa”. “Africa’s fundamentals appear strong, and the continent’s outlook remains positive,” Ezekwesili said, pointing to the continent’s rapid rebound from the 2008-2009 global financial crisis, and its higher GDP growth rates projected to be 4.8 percent, 5.2 percent and 5.5 percent respectively in 2011, 2012 and 2013. It makes business sense to bet on Africa’s capital markets, she said, at a time when “global equity markets are headed for their worst quarter since 2008”, and returns on investments in Africa are among some of the best in the world. Ezekwesili cited a recent study by Oxford University Professor, Paul Collier, which found the return on capital for over 950 African enterprises to be on the average 11 percent higher than in Latin America and Asia, and 70 percent more profitable if compared against similar Chinese firms. Capital is flowing to Africa, the World Bank vice president explained, “because the continent has become a friendlier and more profitable market, about which businesses, consumers, investors and development partners are all bullish. Investors who joined the flight for quality at the onset of the 2008-2009 global crisis can now testify, Ezekwesili argued, that “Africa stayed stable” even as the global stock exchanges went on a wild roller coaster ride. Recovery on African stock markets came fast despite the fact that their limited liquidity and relative small size was amplified. While initial hopes that investors – weary of markets in developed countries – would seek opportunities in Africa and other developing regions were misplaced, most African stock markets with the exception of the Johannesburg Stock Exchange have grown robustly, doubling their market capitalization between 1992 and 2002, from $113.4 billion to $244.7 billion. In a move that is likely to set a new record, the Lagos Stock Exchange, the region’s fastest growing market, plans to bring its current capitalization of $40 billion to $1 trillion in five years. According to Ezekwesili, “one of the key lessons of the past global crisis is that Africa knows how to shrug off the impact”. “Been there, done that”, was the attitude she said African finance ministers who attended the September 23-24 Annual Meetings of the World Bank and International Monetary Fund  in Washington, DC, had on being told that news of a potential global crisis meant even more reforms on their part. Policy reforms lead to positive growth One explanation for Africa’s success is the region’s sustained pace of meaningful reforms. As many as 36 of the 46 African countries surveyed by the Doing Business report have implemented major reforms over the last five years, including those whose ranking has slipped or has not improved. Ezekwesili said the continent of which she speaks is “an exciting, new Africa… on the cusp of an economic revolution similar to China’s and India’s”. She described it as a region of abundant opportunities in agriculture, agribusiness and agro-processing; with strong demand for capital in infrastructure development; but also a region in need of a second round of investments to upgrade the ICT sector, expand broadband use, mobile banking and Internet access. Ezekwesili called on investors to help themselves, by not focusing too narrowly on making the fast buck, but on building social accountability, transparency, and fostering the fight against corruption, promoting social corporate responsibility by helping to develop the human capital and labor skills that will be needed if the “new Africa” is to lure some of the 85-to-90 million labor-intensive jobs in light manufacturing that wage pressures will force firms in China to off-shore in the next three-to-five years. Africa, Ezekwesili said, needs to replicate the knowledge that enabled policy reforms to precede efficient public investments before private capital helped turn a loss-making sector such as telecommunications into the ICT revolution the continent has witnessed. Strengthening Africa’s capital markets whose success is intrinsically linked to the economic success of the continent is essential if Africa is to fulfill its vast potential, said Bill Mills, CEO of Europe, Middle East, and Africa at Citigroup, one of the co-sponsors of the summit. Ezekwesili pledged World Bank support to continue to help African governments embrace the right reforms, build the right institutions, make the right public investments, build the resilience of their economies to shocks and make the right policy choices, including diversifying their economies, developing the private sector and protecting the poor and most vulnerable in a time of crisis.  Admitting that “nobody really knows for certain the extent of the effects of the crisis on the most fragile, debt-ridden and budget-strapped economies,” Ezekwesili said even when a global crisis hits Africa some of the most effective mitigating effects would come from leaders not taking their hands off the reins of reforms but also from stronger growth in countries like South Africa and Nigeria, as well as from a return to growth after violent conflicts such as in Cote d’Ivoire.