Global economic prospects have dimmed in the wake of Russia’s invasion of Ukraine, according to the latest Economic Outlook published by the International Monetary Fund (IMF) last week. The IMF now sees the global economy growing by 3.6% this year and by 4.4% next year. In an outlook published in January, the IMF had predicted that the global economy would expand by 4.4% in 2022 and by 4% in 2023. For the sub-Saharan region of Africa, the IMF expects a growth rate of 3.8% this year.
It's a bit difficult to understand the IMF’s view of the African economy because - oddly enough - the institution lumps North Africa with the Middle East and treats sub-Saharan Africa separately. But the most important consequence of the Ukraine war for Africa is a severe shortage of food staples. This shortage should affect most African countries, particularly those with poorer populations. That said, higher prices on wheat caused by the conflict should have, according to the IMF, less of an effect, as wheat plays a relatively small role in the African diet. Moreover, weaker economic growth should also affect countries like Egypt or Tunisia that rely on international tourism. The African economy will also be affected by higher inflation and the higher interest rates that are likely to follow from it.
The IMF also says the global supply shock will have less of an impact on those African countries rich in natural resources. Higher oil prices have already lifted growth prospects for oil exporting countries such as Nigeria. The bottom line is in our view that investors will have excellent investment opportunities on all African stock markets this year.
Meta, Zalando, Robinhood, Peloton – several tech firms that profited greatly from the last global bull market have fallen. Since the beginning of the year, Meta (ISIN: US30303M1027), the holding firm of Facebook, is down 35.9%. German online clothing retailer Zalando (ISIN: DE000ZAL1111) has lost 39%. Meanwhile, the stock trading app Robinhood (ISIN: US7707001027) has shed 37.2% and the digital cycling coach Peloton (ISIN: US70614W1009) is down 32%.
Naturally, African tech stocks have also been affected by the global sell-off: South African tech investor Naspers (ISIN: ZAE000015889) is, for example, down 38.4% since the start of the year. German e-commerce platform provider Jumia Technologies (ISIN: US48138M1053) has also been hit: -26.1% since 1 January. When the company went public on the New York Stock Exchange (NYSE) in April 2019, people wondered if Jumia was actually an African company. According to Jumia’s PR team, it is no less than the “Amazon of Africa.” This did not help it escape the recent turmoil.
Still, African tech is popular among international investors. Consider that the sector raised a record USD 5.2 billion in venture capital last year and its prospects remain good. Examples include Paystack, a Nigerian fintech acquired by US payments company Stripe in 2020, or the fintech Flutterwave, currently valued at more than USD 3 billion. Fintechs such as Chipper Cash, MFS Africa, Yoco or OPay have also raised a total of USD 833 million recently.
It seems clear that international investors are looking to fund firms that provide banking services for the many in Africa that lack access to such services. As the fintechs are still privately held, they have not been affected by the recent global sell-off. Indeed, the tech scene in Africa is so young that only a few companies are listed. But this will change.
Six years ago, UK banking group Barclays (ISIN: GB0031348658) announced that it would exit Africa’s banking industry. In keeping with that announcement, Barclays has sold a 7.4% stake in South African bank Absa (ISIN: ZAE000255915), raising GBP 526 million (EUR 632 million). The 7.4% stake comprises 63 million shares sold at ZAR 164 (EUR 10.03) each. This deal will nevertheless lead to a loss of GBP 43 million (EUR 51.7 million) because the Africa business was valued even higher on Barclays' balance sheet.
Following the transaction, Barclays will end a 90-year history with African banking. Other UK banks are also turning their back on Africa. Barclays peer Standard Chartered announced earlier this month that it would reduce its African business by exiting seven countries. Standard Chartered’s board said the move was prompted by lower than expected economic growth. We see the reason for this failure in the fact that African banks have become stronger and the old colonial banks have been too slow to adapt to the tougher competitive environment.
Prior to the announcement by Barclays, Absa’s share had performed well, gaining 5.4% in the past three months. But since the announcement on Thursday, Absa lost 6.2% to ZAR 177 (EUR 9.86). Fortunately, Absa’s fundamentals are still sound. It is one of the most profitable banks in Africa with an operating margin of 44%. Its share offers a dividend yield of 7.25% and a price-to-book ratio of just 1.08.
Concerning the Nigerian stock market, our expectations were somewhat off. In our newsletter on 11 April, we expected that African commodity stocks would be a hot bet. This expectation was not totally wrong, as, for example, Oando (ISIN: NGOANDO00002) is up 2.1% to NGN 4.85 (EUR 0.0107). That is nothing to sneeze at given the current market environment.
But it turns out beer and palm oil stocks are doing much better on Lagos’ stock exchange. Guinness Nigeria (ISIN: NGGUINNESS07) has gained 17.3% since our 11 April newsletter to NGN 82.25 (EUR 0.1823). Meanwhile, Nigerian Breweries (ISIN: NGNB00000005) is up 16.1% to NGN 48 (EUR 0.1064) and Okomu Oil Palm (ISIN: NGOKOMUOIL00) 8.4% to NGN 153.90 (EUR 34.33).
This is what we meant in our first comment: Countries rich in natural resources stand to benefit the most in terms of revenue from higher prices for energy, industry metals and soft commodities. Investors also seem to think that Nigerian brewers and food processors will be the first to benefit from the higher global demand for oil and gas.