Africa prospects lure investors, but is it ready?

[anansi]

Africa prospects lure investors, but is it ready?

SAO PAULO (Reuters) – Africa offers among the world's best

investment prospects as emerging markets grow ever more important, although its economies risk being destabilized by the slew of capital they stand to attract in coming years.
Energy-producing continental giant Nigeria was identified as a top pick by some of the most influential figures in emerging markets finance who spoke to the Reuters Emerging Markets Summit in Sao Paulo last week.

Africa withstood the financial crisis better than many predicted, and the region's economic growth is forecast at 4.75 percent in 2010. Next year, half of the world's 10 fastest growing economies are expected to be in Africa, and it is now attracting more than just the most intrepid investors.
"The latent interest in Africa is enormous," said Stephen Jennings, chief executive of Russian investment bank Renaissance Capital, speaking to the Reuters meeting by video link from Moscow.
"Before the crisis there were probably 40 people or groups establishing Africa funds. In 3-4 years you'll have 100 Africa funds and the biggest one won't be $2 billion, it'll be $20 billion."
Fund tracker EPFR reports 43 consecutive weeks of net inflows to Africa equities funds, reaching $484 million in the first half of 2010 -- nearly double those to India over the same period.
Africa's advocates say the inflows stand to accelerate rapidly as a dearth of attractive returns in the developed world pulls investors in while a more stable political and economic environment indicates diminishing risks.

MSCI's index of Africa countries outside South Africa (.dMI8600000P), though well off its year highs, is still up nearly 8 percent in 2010. The S&P 500 (.SPX) is more than 8 percent down.
BRIC LINKS
A shift of global economic power to emerging giants such as Brazil, Russia, India and China -- known collectively as the BRICs -- benefits Africa as surging economies seek its resources and push up commodity prices and investment.

Brazil, Russia and India still trail China, which last year became Africa's biggest trade partner, but they have been rapidly expanding trade and putting more money into Africa.
"What's absolutely striking is how much change there's been between the BRIC countries and Africa," said Jacko Maree, chief executive of South Africa's Standard Bank, which is Africa's biggest. "We like to think that the whole story has only just begun."

Brazilian firms with a large African presence may soon issue bonds in South African rand to seize on growing interest, said Standard Bank's chief executive in the Americas, Eduardo Centola.

NIGERIA TOP PICK

Nigeria's market of about 140 million people -- nearly three times bigger than South Africa's -- as well as its energy resources and bigger, more liquid markets, makes it the top choice for many eyeing Africa.
On the Goldman Sachs' growth-environment index, which measures a mixture of economic and social development indicators, Nigeria's score has nearly doubled over the past decade.
"If it were to show the same increase in its growth-environment score over the next decade, many investors will look back and say why the hell didn't I invest in Nigeria," said Goldman Sachs' global head of economic research Jim O'Neill, who coined the term BRICs.

Ethiopia and Rwanda are among the smaller African economies seen as promising. They show how previously ignored countries scarred by war are emerging as possible investment magnets alongside those such as Ghana, a relatively stable democracy which is soon to become an oil producer.

There are risks, though, with concerns over political stability even in bigger economies such as Nigeria and Kenya.
Africa experts underline the fact that new mineral riches have rarely been shared widely, and suggest reliance on such income for national coffers could discourage establishing tax bases that would put states on a sounder footing.
"Where I think the real caution has to come in is the quality of the growth," said Patrick Smith of the Africa Confidential newsletter. "It would be pretty silly to say success is certain."

A big influx of investment funds could in itself pose a problem for African countries less prepared to cope than those in other rapidly growing regions that have felt the pain of such flows in the past.
"Africa has no experience of huge capital inflows," said Renaissance's Jennings. "Under the scenario I'm painting, the capital inflows will be way above and beyond the ability of those countries to absorb them."

Most African countries have small, illiquid markets and little financial infrastructure, raising the chances of economic distortions and asset bubbles that could lead to currency crises and long-term damage.
"People look at how certain African economies have been getting their act together and there is a risk you will get significant capital inflows," said Mohamed El-Erian, chief executive of PIMCO, the world's largest bond investor.
"That will provide quite a challenge to policy makers."
(Editing by Kieran Murray)
news.yahoo.com/s/nm/20100707/bs_nm/us_emergingmarkets_africa;_ylt=Atq0aic3qR9Z_fRTxPG_U9xvaA8F;_ylu=X3oDMTJ2M3VucmYxBGFzc2V0A25tLzIwMTAwNzA3L3VzX2VtZXJnaW5nbWFya2V0c19hZnJpY2EEcG9zAzIxBHNlYwN5bl9hcnRpY2xlX3N1bW1hcnlfbGlzdARzbGsDYWZyaWNhcHJvc3Bl

[franklin]

I think there is a scheme to make African countries more reliant on exporting oil even though many African countries also have energy crisis and tons of resources other than oil.

Notice in the comments section of that article Robby said this. Africans themselves could invest their resources into developing copper but if the price is low there isn't much you can do:

[Unfortunately ANGLO AMERICAN pulled out of Zambia during the 2002 copper prices crisis, we still need you back with your good incentives.]

Because things are so focused on oil the economy is distorted which is why most of Nigeria's population is rural but they import food

This is interesting from De Soto who claims the poor have the largest potential capital for investment

"The Mystery of Capital" by De Soto page 34

www.amazon.com/Mystery-Capital-Capitalism-Triumphs-Everywhere/dp/0465016146

[In every country we have examined, the entrepreneurial ingenuity of the poor has created wealth on a vast scale-wealth that also constitutes by far the largest source of potential capital for development. These assets not only far exceed the holdings of the government, the local stock exchanges, and foreign direct investment; they are many times greater than all the aid from advanced nations and all the loans extended by the World Bank]

If there is no market access for Africa's other resources then this potential will never be tapped. Notice that Gabon has a "highly favorable trading environment" in terms of exporting oil but it's agriculture faces higher barriers and tariffs. This is deliberate to turn them into oil exporters and distort their economy

[franklin]

Copper have been low but so has silver. I read a good article on silver a while ago but don't remember what it was called. Silver was at almost 50$ at one time but it has just recently risen above 18$

'Silver is misunderstood. Silver price can go to $25' By Lara Crigger

www.commodityonline.com/news/Silver-is-misunderstood-Silver-price-can-go-to-$25-17329-2-1.html

[What Copper Has To Do With It

Approximately 70% of the silver mined each year is actually by-product, extracted from alloys and ores of gold, copper, nickel, lead and zinc. That means base metals miners and the big diversified natural resources companies often have great control over silver prices - for better or worse.

"If you're a copper miner, you don't care about the price of silver. You just pass it off to your bank for them to sell at any price they like. That puts a lot of pressure on silver prices," explains Morgan.]

The melt value of the United States nickel was pretty high at one time was pretty high but the price of nickel has gone down and it is now worth a little less than 5 cents

[franklin]

The policies of Europeans and the United States create a situation in which African governments have to intervene when they otherwise wouldn't have to in the first place. This is seen with the cotton industry as seen in my signature where governments had to support the industry while cotton prices were falling. Also the same thing is seen in Gabon where Gabon is trying to diversify its economy.

There are more barriers for processed goods so governments intervene to try to encourage the export of finished products instead of raw materials so that it employs more people. This is also why there is a hard time getting investment.

"Nigerian Cocoa Processors to Obtain Credit After Debts Repaid" By Vincent Nwanma May 27, 2010


[Nigeria’s government is trying to diversify its economy and become less reliant on crude, which generates more than 90 percent of the nation’s export earnings. In January, the government announced a 21.5 billion-naira ($141.4 million) export-expansion grant to be given to companies that export manufactured, non-oil goods....

....Cocoa grinders in Nigeria want the government to do more to help the industry, including improving access to European markets, Olusuyi said. Without this assistance, the processing industry in the country won’t grow, he said.

Nigeria should sign an Economic Partnership Agreement with the European Union to increase access to that market, he said. Without the pact, Nigerian processors pay a 4.5 percent duty on butter exports and 6.5 percent on cocoa cake, while shipments from Ghana and Ivory Coast aren’t subject to such tariffs.

“Nobody is asking for our butter in Europe, and when they do they do so at ridiculous prices,” making it more profitable to export raw cocoa than to process it, he said.

The Cocoa Association of Nigeria, which groups producers, processors, traders and regulators, estimates that only 20 percent of the country’s cocoa is currently processed, with the remaining 80 percent exported as raw beans.

Nigerian cocoa production ranks behind Ivory Coast, Ghana and Indonesia in terms of volume, according to the International Cocoa Organization.]

"Nigeria: Rescuing the Cocoa Industry" 24 February 2009 Editorial allafrica.com

allafrica.com/stories/200902250231.html

[Oladapo said the industry was facing two peculiar challenges and a general/national headache. These are: problems arising from the use of the Export Expansion Grant (EEG) introduced by the Obasanjo administration to boost non-oil export; the hostility of the international market, especially the EU countries, to Nigeria's processed cocoa export because of the country's non-endorsement of the EU's Economic Partnership Agreement; and the hard-biting national power problem.

Such is the menace of these challenges to the cocoa processing industries that many of them have folded up while those that still manage to operate are barely surviving. This crunch is so serious that many industries in this sector are said to be considering the options of either relocating their facilities to Ghana or Cote d'Ivoire or trading in raw cocoa beans, twin options that would, in the long run, not augur well for the nation's economic development.]

[anansi]

Jul 15, 2010 13:37:30 GMT -5 franklin said:

The policies of Europeans and the United States create a situation in which African governments have to intervene when they otherwise wouldn't have to in the first place. This is seen with the cotton industry as seen in my signature where governments had to support the industry while cotton prices were falling. Also the same thing is seen in Gabon where Gabon is trying to diversify its economy.

There are more barriers for processed goods so governments intervene to try to encourage the export of finished products instead of raw materials so that it employs more people. This is also why there is a hard time getting investment.

"Nigerian Cocoa Processors to Obtain Credit After Debts Repaid" By Vincent Nwanma May 27, 2010


[Nigeria’s government is trying to diversify its economy and become less reliant on crude, which generates more than 90 percent of the nation’s export earnings. In January, the government announced a 21.5 billion-naira ($141.4 million) export-expansion grant to be given to companies that export manufactured, non-oil goods....

....Cocoa grinders in Nigeria want the government to do more to help the industry, including improving access to European markets, Olusuyi said. Without this assistance, the processing industry in the country won’t grow, he said.

Nigeria should sign an Economic Partnership Agreement with the European Union to increase access to that market, he said. Without the pact, Nigerian processors pay a 4.5 percent duty on butter exports and 6.5 percent on cocoa cake, while shipments from Ghana and Ivory Coast aren’t subject to such tariffs.

“Nobody is asking for our butter in Europe, and when they do they do so at ridiculous prices,” making it more profitable to export raw cocoa than to process it, he said.

The Cocoa Association of Nigeria, which groups producers, processors, traders and regulators, estimates that only 20 percent of the country’s cocoa is currently processed, with the remaining 80 percent exported as raw beans.

Nigerian cocoa production ranks behind Ivory Coast, Ghana and Indonesia in terms of volume, according to the International Cocoa Organization.]

"Nigeria: Rescuing the Cocoa Industry" 24 February 2009 Editorial allafrica.com

allafrica.com/stories/200902250231.html

[Oladapo said the industry was facing two peculiar challenges and a general/national headache. These are: problems arising from the use of the Export Expansion Grant (EEG) introduced by the Obasanjo administration to boost non-oil export; the hostility of the international market, especially the EU countries, to Nigeria's processed cocoa export because of the country's non-endorsement of the EU's Economic Partnership Agreement; and the hard-biting national power problem.

Such is the menace of these challenges to the cocoa processing industries that many of them have folded up while those that still manage to operate are barely surviving. This crunch is so serious that many industries in this sector are said to be considering the options of either relocating their facilities to Ghana or Cote d'Ivoire or trading in raw cocoa beans, twin options that would, in the long run, not augur well for the nation's economic development.]

Look African countries need to stop relying so much on Euro/American trade did you know the dairy prices roused significantly in Japan because of demand from China? Now I am not saying that China should be the end all for all African products but they really need to look at new markets and I am encouraged by the fact that the Nigerians are trying to diversify for one thing sooner or later some one will find a new energy break through not oil base ..and then what? manufacturing your own products help to build and innovate technology..process the material for local and regional use then fight like hell to find new markets with the surplus,Africa's economic blocs need to block their processed goods from coming in-in retaliation then let them take it up with the WTO in similar vain to what China,India and Japan had done.

[franklin]

China and India are currently having massive problems with low incomes in rural areas. I don't see why you keep saying China and India can be seen as a model when they are already having these very same problems and are obeying the WTO rulings even while the United States is ignoring the rulings of the WTO

1. Could you explain why you keep saying China and India are somehow rebels against the WTO?

2. What do you mean sooner or later there will be a new energy breakthrough? There is already ethanol which Nigeria is already seeking to develop

[franklin]

You said Africans should look into finding new markets but they have already been successful in trading all over the world

Countries like Zimbabwe have successfully done everything you described, they had surpluses of Maize and were competing in the world economy having several external markets. Zimbabwe was actually one of the most successful countries in Africa in this respect.

And all of this success was while Mugabe was president

Asian countries import a lot of cotton so African cotton growers were not relying too much on American/European market they were part of a world market being successful and benefiting from this trade.

On the other hand cheap United States cotton means countries like China selling cheap textiles on markets all over the world but China also dumping cheap textiles in Africa, thus hurting African cotton growers and potential textile producers.

Same thing with the sugar industry, Africans were not just pushed out of American and European markets they were pushed out of African markets. For example Mozambique could not compete with cheap European sugar in Nigerian and Algerian markets.

Most of these involve changing markets outside of Africa so not selling out is not going to make it possible for South Africans to compete in the Japanese market for canned tomatoes

Africa can only benifit from more trade and

[franklin]

I don't see how "not selling out" would have changed things so Africans would not have lost so much of the copper trade since independence

I could understand how incompetence could create a situation in which Africans have so little world trade but incompetence is different from selling out.

Another thing is many people in the Middle East have been asking for market access. I can see how lack of market access could be because of laziness or incompetence, but how could selling out create a situation in which Pakistani textiles are discouraged from American markets?

I do not think any of this has being beneficial to the common people of the United States or Europe because they could import ethanol instead of oil.

If Nigerians were simply selling out wouldn't United States and Europeans be taking things other than just oil from Nigeria? Africa's trade with the United States is almost all oil.

[franklin]

China and India and WTO, even though the United States and European Union have rebelled against WTO rulings.

In the part quoted I bolded the part that mentioned WTO:

"Serious problem" quoting article "Suicides on increase in India, blame put on debt and stress"

egyptsearchreloaded.proboards.com/index.cgi?board=pol&action=display&thread=417

[...And why does the IMF, the World Bank and WTO oppose it? The answer is simple. India's massive food procurement operations are coming in the way of the expansion of the food trade that the United States and the European Union are looking for. And if the US doesn't find an assured food market in a country as huge as India, with one sixth of the world's population, the chances are that its own agriculture will collapse under the artificial weight of its own federal subsidies...

...What lies ahead is frightening. Committed to the WTO, the government (of India) has in reality begun to remove trade barriers much in advance]

And India's rural population is suffering greatly from this.

Same with China which I already posted

“How Tightly Has China Embraced Market Reforms

in Agriculture?” Domestic and global challenges could push Chinese policymakers to go further with market reforms or retreat from global markets.

by

Fred Gale
Bryan Lohmar
Francis Tuan

www.ers.usda.gov/amberwaves/June09/Features/ChinaMarket.htm

[...China’s policymakers face a stiff challenge in the 21st century as they promote farm income growth in an open economy. This challenge was highlighted in late 2008 when global commodity prices fell below domestic Chinese prices. Chinese policymakers, intent on supporting prices, purchased large quantities of corn, cotton, wheat, rice, and soybeans at set prices. They also announced higher wheat and rice support prices for 2009. By the end of 2008, commercial sales of domestic soybeans in Heilongjiang Province were at a standstill because the price of imported soybeans was well below the domestic support price. At the time, there were strong sentiments in the Chinese soybean industry to raise soybean tariffs, but this was not an option since China’s commitment as a WTO member bound its soybean tariff at 3 percent.]

[anansi]

Jul 17, 2010 22:24:53 GMT -5 franklin said:

China and India and WTO, even though the United States and European Union have rebelled against WTO rulings.

In the part quoted I bolded the part that mentioned WTO:

"Serious problem" quoting article "Suicides on increase in India, blame put on debt and stress"

egyptsearchreloaded.proboards.com/index.cgi?board=pol&action=display&thread=417

[...And why does the IMF, the World Bank and WTO oppose it? The answer is simple. India's massive food procurement operations are coming in the way of the expansion of the food trade that the United States and the European Union are looking for. And if the US doesn't find an assured food market in a country as huge as India, with one sixth of the world's population, the chances are that its own agriculture will collapse under the artificial weight of its own federal subsidies...

...What lies ahead is frightening. Committed to the WTO, the government (of India) has in reality begun to remove trade barriers much in advance]

And India's rural population is suffering greatly from this.

Same with China which I already posted

“How Tightly Has China Embraced Market Reforms

in Agriculture?” Domestic and global challenges could push Chinese policymakers to go further with market reforms or retreat from global markets.

by

Fred Gale
Bryan Lohmar
Francis Tuan

www.ers.usda.gov/amberwaves/June09/Features/ChinaMarket.htm

[...China’s policymakers face a stiff challenge in the 21st century as they promote farm income growth in an open economy. This challenge was highlighted in late 2008 when global commodity prices fell below domestic Chinese prices. Chinese policymakers, intent on supporting prices, purchased large quantities of corn, cotton, wheat, rice, and soybeans at set prices. They also announced higher wheat and rice support prices for 2009. By the end of 2008, commercial sales of domestic soybeans in Heilongjiang Province were at a standstill because the price of imported soybeans was well below the domestic support price. At the time, there were strong sentiments in the Chinese soybean industry to raise soybean tariffs, but this was not an option since China’s commitment as a WTO member bound its soybean tariff at 3 percent.]

I didn't say Nigerians were selling out I said that the African economic blocs should not just cow tow to Euro and American economic interest but retaliate..when they are being blocked ..The Chinese the Indians the U.S frequently go to the W.T.O or threatened to go before the W.T.O to resolve the issue resolve the fact that the Chinese and Indians gave in to the W.T.O's ruling is another issue ..but they don't just roll over when ever the Europeans or Americans say so.

[franklin]

It sure looks to me that they caved in. The WTO rules against the United States on certain matters, but the United States ignores this and keeps it's policies. On the other hand China and India obey the WTO.

Now its one thing for these countries to give in to some trifling issue, but this is not a trifling issue.

David Hume hundreds of years ago explains the situation with China today, since Chinese hold American debt they are able to sell goods cheaper

books.google.com/books?id=55g_AAAAcAAJ&pg=PA198&dq=AA#v=onepage&q&f=false

[In short, our national debts furnish merchants with a species of money, that is continually multiplying in their hands, and produces sure gain, beside the profits of their commerce. This must enable them to trade upon less profit. The small profit of the merchant renders the commodity cheaper, causes a greater consumption, quickens the labor of the common people, and helps to spread arts and industry thro' the whole society.

There are also, we may observe, in England, and in all states, which have both commerce and public debts, a set of men, who are half-merchants, halfstock-holders, and may be supposed willing to trade for small profits because commerce is not their principal or sole support, and their revenues in the funds are a sure resource for themselves and their families. Were there no funds, great merchants would have no expedient for realizing or securing any part of their profit, but by making purchases of land ; and land has many disadvantages in comparison of funds....More men, therefore, with large stocks and incomes, may naturally be supposed to continue in trade, where there are public debts: And this, it must be owned, is of some advantage to commerce, by diminishing its profits, promoting circulation, and encouraging industry *....]

That is what David Hume saw as an advantage of the national debt, and is relevant today because of the mass consumption and everything. However David Hume explains how all this is negated by many negatives.

He talks about how this allows more concentration in trade than land which could also apply to China today

However things might be changing now, maybe China will buy the debt of other countries who will in turn buy United States debt!

[franklin]

Anansi could you address this? You keep pointing out OPEC or China as examples of countries that are some how resisting manipulation

Jul 19, 2010 9:40:49 GMT -5 anansi said:

The Chinese the Indians the U.S frequently go to the W.T.O or threatened to go before the W.T.O to resolve the issue resolve the fact that the Chinese and Indians gave in to the W.T.O's ruling is another issue ..but they don't just roll over when ever the Europeans or Americans say so.

What sense does this make? The policies of Europe and the United States has brought so much misery to these people by importing in food at prices under the cost of production, I have shown several times how industries in Middle East countries were suppressed and that leaders have complained about this

As for mineral resources China produces almost all of the worlds "rare earth minerals" even though rare earths exist all over the world. This is done on purpose exploitation of these minerals are being stifled in the rest of the world and is focused in China while China is being manipulated.

The quote I showed from David Hume shows why the United States exported some of it's debts to China, its a way to encourage their economy

By the way the United States has many resources that are not exploited

Nov 14, 2010 4:32:22 GMT -5 anansi said:

Where is Africa's economic blocs if they don't demand fair prices they will continued get screwed by everyone, It is in the interest of Africans to present a unified front in regards to their mineral wealth..think OPEC, the gulf states, Venezuela. And economics has less and less to do with national governments nowadays and more to do with so-called multi-national cooperations,who give not one wit about any country including their own.

The corporations do not have the capacity to do anything without government support financial and otherwise. I mean seriously India has suffered under Monsanto which in turn isn't even profitable without free money from the United States. Possibly with higher food prices now there will be another glut in world markets

Another notable example is Brazil which has been wanting to export ethanol to the United States for a long time but the United States has tariffs.

Also remember Africa had also been losing its share of different exports since independence?