Nobody wants to pronounce the word “recession”. In the US, the media even prefer to use the “R word” not to say that scary word. But all institutions, first of all the Biden administration in the USA, are preparing for an economic downturn, a time of low or even negative growth.
The International Monetary Fund (IMF) published last week an update of its “World Economic Outlook.” The IMF expects now a global growth of 3.2% in 2022 and of 2.9% in 2023. Sub-Saharan Africa will still be above the world average with an expected growth of 3.8% in 2022 and 4.0% in 2023. Unfortunately, the IMF does not include North Africa in the African continent.
We regret that Africa is not achieving higher growth when the continent so desperately needs more economic dynamism at all levels. However, Africa will emerge relatively well from this global economic crisis. The African capital market offers attractive companies with convincing business models. Investors will also be interested in these in these difficult times.
The vulnerability of the African economy, however, is debt, especially government debt. Especially in Ghana, the situation is worrying where public debt rose to 81.8% of GDP in 2021, from 78.3%. For many African governments however, the problem is not so much the amount, but the fact that it has often been contracted in hard currency, primarily in US dollars. In 2021, external public debt in Africa went up to USD 727 billion from USD 697 billion the year before.
From our point of view, this shows how important are private investors to develop financial markets on the continent. The promotion of private pensions schemes, life insurance, stock savings plans and investment savings plans would be an important point.
Many African equity markets have suffered price losses, some of them large, this year. The Casablanca stock exchange is down 12% after seven months, as measured by the blue-chip index MSI 20. On the Nairobi Stock Exchange the NSE 20 index lost 12.5% this year, and in Johannesburg the South Africa Top 40 index 7%.
However, the West African markets are developing significantly better than the rest of the continent in this year 2022. The BRVM 10 index, the blue-chip index of the stock exchange in Abidjan called BRVM, won more than 5% this year. And on Lagos stock exchange, the NSE 30 index went up by nearly 6% since January 2022.
Is this a whim of statistical chance? Or are there solid reasons for this? In the case of the BRVM, it is currently paying off that this exchange has a strength in agriculture. The price of Palmci shares (ISIN: CI0000000592) rose by 77.4% to XOF 12,400 (EUR 18.90) in the first seven months this year. In 2021, sales increased by 43% to XOF 17,085 million (EUR 26 million). The net income even multiplied by 12 to XOF 42,473 million (EUR 64.7 million). The markets are impatiently awaiting the results for the first half of the year.
The same is true for the Nigerian Stock Exchange. The Okomu Oil Palm Company (ISIN: NGOKOMUOIL00) is one of the favourites this year with a stock price surge of 52.8% to NGN 216.90 (EUR 0.5160) since the beginning of the year. Through a succession of holding companies, French entrepreneur Vincent Bolloré is the majority owner of Okomu Oil.
Although palm oil has a bad reputation in the north because of the growing conditions in East Asia, it is a sought-after staple in developing countries. It produces a cheap and healthy vegetable oil. Cultivation in West Africa is also more strictly regulated than in the Philippines, Malaysia or Indonesia.
Rising oil prices are transforming African capital markets well beyond the commodities and energy sectors. An example of this is the Nigerian company Cornerstone Insurance (ISIN: NGCORNERST03). The stock is up an impressive 63% to NGN 0.75 (EUR 0.0018) this year to date. In the past week alone, the price has increased by more than 13%.
Insurance stocks are having a hard time in the current market environment. The US insurance giant Marsh & McLennan (ISIN: US5717481023) lost 9% this year to date and the German insurance company Allianz (ISIN: DE0008404005) 16%.
The secret behind Cornerstone's interest is its exposure to the oil and gas sector. The insurer realises 34.5% of its gross written premiums in oil and gas insurance and another 27.9% in engineering insurance. In 2021, revenues from non-life insurance rose by 26.7% to NGN 6,531 million (EUR 15.5 million). Obviously, the market expects a further increase of written premiums this year.
This is what we would call a shareholder-friendly decision: Even high losses do not prevent the management of the Kenyan investment company Centum Investment (ISIN: KE0000000265) from paying out a dividend to the shareholders. Centum even raises the pay-out to KES 391 million (EUR 3.25 million) for the financial year ended March 31, from KES 220 million the year before, Centum announced last week.
After all, Centum reduced its loss by a full 2% to KES 1.33 billion from KES 1.36 billion in the past financial year. That's a good reason to treat yourself to a profit distribution, even if it has to be paid for from the substance. The dividend goes to the Kenyan businessman Christopher John Kirubi, who holds 30.9% of the shares. The Kenyan government, which owns 23% of the investment company, is also being considered.
At the same time, the share price plunged 15% in the past week to just KES 8.50 (EUR 0.0707) and finished the week at KES 9.32 (EUR 0.0766). This year to date, the share price has fallen by 33.9%.