Will the Covid pandemic mark a turning point for Africa?

The Covid-19 pandemic has clearly had a serious affect on global markets – notwithstanding the massive global stimulus designed to offset it and the continuing rise of a ‘super league’ of mega tech stocks, listed mainly in the US. 

But in the mostly frontier economies of sub-Saharan Africa, many markets that were already looking cheap arguably look even cheaper. And with even bigger, more ‘investible’ markets like Nigeria still beset with difficulties like convertibility of capital, sadly that doesn’t seem likely to change soon.

Amid a wave of redemptions, restructuring and shutdowns among Africa funds, sources say even some of the biggest and longest-running investors in the space have been throwing in the towel. Apparently, even Blakeney Management, founded by Miles Morland back in 1990 and one of the most well respected if low profile players in Africa, decided recently to shut down its old funds. 

The move seems symptomatic of an increasingly dispiriting lack of interest in African equities – even if Blakeney may have had some issues in the Middle East too.

Blakeney has been investing in both Africa and the Middle East since at least 1995 on behalf of some of the most sophisticated endowments, foundations, pension funds and family offices in the world. Sources say the firm was running assets of about $2 billion at its peak, and still running some $600 million or so until recently.

Morland stepped back from a front-line role to become non-executive chairman at Blakeney back in 2007, when he also became co-founder with Runa Alam of Development Partners International (DPI), a private equity firm still very active and running $2 billion or so across Africa.

He has clearly been a very influential figure across the continent over multiple decades. Blakeney was one of the first investors in many African markets and Morland played an active role in the development of markets in various countries such as Ghana, Morocco, Egypt, Kenya and Tunisia. 

Back in the 1990s, the development of new markets in Africa looked like part of an irreversible secular trend. The Cold War was over, as was apartheid; democracy and free markets were spreading seemingly irresistibly across the world. 

Africa may have been starting from a lower base than other regions, but it seemed part of that inevitable trend; its markets surely had only one way to go – they would develop and grow. 

These days, that trend looks far from inevitable. The rapid rise of China under Xi Jinping, and a resurgent and assertive Russia under Vladimir Putin, were already causing major headaches for the western world well before the onset of Covid-19. 

The Covid pandemic has then given a further major shock to the global economic and political system. How it plays out still looks far from clear.

In the short term, the rise of China seems to have been further boosted – given its relatively swift recovery from the pandemic in 2020 compared to western economies. The ‘Chinese model’ – of free(ish) markets but ‘guided’ by an intrusive state allowing only limited personal freedoms, in particular over political and other personal expression, appears stronger and more challenging than ever to the West.

And even in the West, to combat the pandemic governments of all stripes have felt emboldened to curtail personal liberties to a hitherto unimaginable extent. 

Markets in the West have been revived by the tidal wave of stimulus – though not without concerns about the huge debt overhang and potentially deleterious effects including inflation. The western recovery strategy led by the new US President Joe Biden may be bold, but is also a high stakes gamble.

Against this global backdrop, Africa – already seen as something of a backwater – seems ignored more than ever by international investors. 

Part of the problem is that the investment case for Africa hasn’t changed much in recent years. There’s the commodities story. There’s the rising middle-class story. And there’s the ‘leapfrog’ technology story.

But many of the things that put investors off are still there too. Not least the corruption problem – still seemingly rampant in too many places. And the ‘big men’ in government who will seemingly do almost anything to cling to power – long past their sell-by date in too many places.

One lesson of the past is that, whenever investors face problems or challenges at home, as they currently do due to the pandemic, they tend to retreat from frontier markets. So is there any surprise it seems so hard right now to tempt  investors into Africa? 

On the other hand, with equity markets in Africa sold down so much even some of the longest running players are retreating, could that perhaps be a countervailing ‘buy’ signal? 

It is often the case that, just when almost everybody has given up on an asset class, it suddenly re-rates. In the past, that has happened time and again. 

According to Blakeney’s current managing partner Obiora Ogbunude, the firm had suffered from outflows and “had to regroup”. However, he said Blakeney does not plan to shut down and is restructuring – indeed with ambitious new plans for the future. 

Ogbunude told us: “Africa continues to be very exciting and one of the most significant growth opportunities globally over the next few years and decades, so we will continue to invest there with new funds, which we are about to launch.” Copyright. HedgeNews Africa – July 2021.