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Why Invest in Africa? Africa has been the world’s fastest growing continent since the turn of the Millennium but despite Africa’s outstanding economic performance only a handful of investors have begun to realise its potential 01 STANLIB Africa Overview 04 02 The Four Pillars of Africa’s Growth 04 More stable and democratic 04 Opening itself up to free trade 05 Labour force 06 Fixed investment has surged 06 03 Common Misconceptions About Africa 08 Africa is heavily indebted 08 Africa suffers fromendemically high inflation 08 Africa is inefficient, lacks transparancy and is corrupt 09 Africa is too small to bother with 09 Africa is too Risky 09 04 The Time is Now 10 Why Invest in Africa? Africa - The World’s Fastest Growing Continent Africa has been the world’s fastest growing continent since the turn of the Millennium. Despite Africa’s outstanding economic performance, only a handful of investors have begun to realise its potential. However, that is not unusual! South East Asia’s economies had been growing rapidly for 20 years before they began to attract serious attention from global investors in the 1980s. In the investment world as in many others, perceptions can lag reality by a surprisingly long time. STANLIB Africa Overview Our Heritage STANLIB is one of Africa’s leading asset managers with its headquarters in South Africa, managing assets in excess of R565 billion* for over 400 000 retail and institutional clients across the African continent. STANLIB was founded in 2002 when Liberty Asset Management and Standard Corporate and Merchant Bank (SCMB) Asset Management merged. Liberty Asset Management and SCMB Asset Management had managed investments for over 25 years prior to their merger. STANLIB has adopted the Franchise Model which is designed to deal with the complexities of the investment world with agility. This operating model provides the advantages and commitment of a boutique house and the strength and efficacy of a large investment house. Our Africa Footprint Linked to the STANLIB footprint across Africa, the teams have an on-the-ground competitive advantage when originating potential investment opportunities and in converting these opportunities into successful investments. In addition, the teams remain linked into the 18 African country Standard Bank/Stanbic Bank network , further enhancing their ability to incorporate vital local knowledge into their offering. The graph below depicts STANLIB activity and presence on the continent, as at 31 December 2013. • Current physical presence • Markets serviced from other jurisdictions • Potential presence WESTERN AFRICA EASTERN AFRICA South Sudan First asset manager to manage money in South Sudan Uganda Nigeria STANLIB was the first asset manager to set up shop in 2002 Standard Bank made strategic acquisition of IBTC Chartered Bank Kenya Ghana STANLIB is the first South African manager to have a physical presence in Ghana Running the largest unit trust in Kenya Namiba Tanzania Standard Bank current physical presence Launched the first property unit trust in Namibia in 2007 Swaziland AUM of +E4.5 billion and biggest manager with local presence Botswana Currently has the biggest unit trust platform in the country and running the biggest money market fund in Botswana South Africa Largest management company in Africa 4 Lesotho SOUTHERN AFRICA STANLIB launched the first unit trust in Lesotho as part of the Government’s privatisation initiative The Four Pillars of Africa’s Growth Africa is becoming more stable and more democratic Up to 75% of Africa’s population now lives under stable and increasingly democratic regimes. This represents a huge turnaround from 30-40 years ago, when the majority of Africa’s population lived under unstable and despotic regimes. This transformation has not occurred overnight and it is still evolving but it is real nonetheless. South Africa, Nigeria, Kenya and many smaller countries are now all democracies. There are 17 investable stock markets in Africa and only one of those Zimbabwe - could still be called a dictatorship. The few countries in Africa that remain unstable - such as Somalia - do not have stock markets. Number of democratic countries in SSA 20 18 16 14 12 10 8 6 4 2 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Source: DB Research 5 Africa is opening itself up to free trade Sub-Saharan Africa has been leading the way in trade reforms. The World Bank’s 2013 ‘Doing Business’ Report shows that between 2006 and 2013 Sub-Saharan Africa introduced more reforms*. Since 1990 Sub-Sahara Africa’s exports to the world’s emerging markets have risen over 4000%. Number of Doing Business reforms making it easier to trade across borders by Doing Business report year. Sub-Saharan Africa 5 Latin America & Caribbean 5 (46 economies) (33 economies) Middle East & North Africa 4 (19 economies) Eastern Europe & Central Asia (24 economies) 5 3 2 1 3 East Asia & Pacific 4 OECD high income 4 (24 economies) (31 economies) 6 11 6 4 3 8 4 4 3 2 14 7 6 6 6 4 2 112 2 2 4 6 5 4 2 9 7 2006 6 2007 6 2008 2 1 2009 2010 2 2 2011 11 2012 5 2013 South Asia 1 2 2 1 1 1 1 (8 economies) 0 10 20 30 40 50 60 70 Source: World Bank Doing Business 2013 Exports from Sub-Saharan Africa to Developed and Emerging Markets 5000 3000 2000 Source: 6 Developed Market 2012 2013 2011 2010 2008 2009 2007 2006 2005 2004 2003 2001 2002 1999 Emerging Markets 2000 1997 1998 1995 1996 1993 1994 1991 0 1992 1000 1990 Index, Jan 1990 = 100, Dollars 4000 Africa’s Labour Force - and its Middle Class - Is the Fastest Growing in the World The McKinsey Global Institute in 2012 forecast Africa’s labour force will grow by 122 million between 2010 and 2020. China’s will grow by just 12 million and North America’s by 8 million. Europe and Japan’s will decline. By 2030-40 Africa will be home to the largest workforce in the world. Of course, a rapidly rising population is of little value if most of it is destined to live below the poverty line. That is far from being the case in Africa. The African Development Bank’s 2011 Africa Report stated that ‘Africa’s Middle Class is the fastest growing in the world.’ In 2010 McKinsey reported that ‘regardless of the fact that India has a larger population than Africa, Africa now has more Middle Class consumers.’ Since 1990, GDP per capita growth in Africa has risen in line with China and India. Poverty levels have fallen commensurately. Africa’s labour force to grow by 122 million by 2020 and largest in the world by 2035 Growth of the labour force, 2010-20 Africa 122 India 78 Size of the working-age population (15-64 years Labour Force 2020 1,200 Africa India 504 1,000 China 534 800 Latin America 45 316 Southeast Asia 40 331 China North America Europe -4 12 792 8 178 600 400 200 354 Source: Southeast Asia Latin America Europe North America Japan 2030 2040 0 1970 1980 1990 2000 2010 2020 Source: Africa’s fixed investment has surged In order for economic growth to be balanced and sustainable, fixed investment spending must be treated as equally important as consumer spending. Africa’s fixed investment spending has surged by over 350% since 2000. As a percentage of GDP, fixed investment spending in key African economies such as Nigeria and Kenya is at least equal to that in China, India and South East Asia. 7 Africa’s Fixed Investment has been Growing Exponentially 250 fixed investment as % GDP 225 200 Up 343% 175 150 125 100 75 50 25 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: The Result? Africa has been the world’s fastest growing continent since 2000. The IMF predicts that between 2015 and 2020, seven out of the world’s 10 fastest growing economies will be found in Africa. It predicts GDP growth for the region as a whole will be between 6% and 7% for the foreseeable future. And Do Not Forget Africa’s Game Changers... ЉЉ Oil and gas - Africa’s growth since 2000 has been achieved without the help of the immense oil and gas discoveries made since then. In the last five years, commercially viable oil and gas discoveries have been made in Ghana, Niger, Ethiopia, Uganda, Kenya, Tanzania and Mozambique. Only a fraction of Africa’s potential energy resources have so far been commercially explored. ЉЉ Electricity - Nigeria’s compound 7%+ GDP growth has been achieved with the same electricity output that powers Japan’s Narita airport. The IMF argues that if Nigeria can reform its electricity production and distribution, annual compound GDP growth could rise to over 10%. And the picture is changing, with many of Nigeria’s state owned electricity generators and distributors recently sold to world class international companies. ЉЉ Agriculture - Africa has 60% of the world’s uncultivated arable land. East Africa alone has a larger acreage of uncultivated arable land than all the cultivated land of India. Again, the picture is changing, with China, India, Brazil and the Gulf States competing to lease millions of acres of Africa’s farmland to secure their future food supplies. 8 Common Misconceptions About Africa Africa is Heavily Indebted Wrong - Africa’s Sovereign debt as a percentage of GDP has been falling steadily. According to IMF statistics, Africa is now the least indebted region in the world. African Debt levels as a % of GDP Have Fallen Dramatically 75.00 68.75 62.50 56.25 % of GDP 50.00 43.75 37.50 31.25 25.00 18.75 12.50 2012 2011 2010 2008 2009 2007 2005 2006 2003 2004 2002 2001 2000 1998 1999 1997 1996 1995 1993 1994 1991 1992 1990 6.25 0.00 Source: Africa Suffers From Endemically High Inflation While it is true that inflation in Africa is projected at around 8% for 2015 compared to around 6% for Latin America and 4% for Asia, it is no longer out of line with other global regions and should fall further as the weighting represented by food in Africa’s inflation basket continues to decline. African Inflation is No Longer Significantly out of Line with Other Global Regions 14 12 10 8 6 4 2 0 -2 2008 2009 2010 2011 2012 2013 2014 Africa – Latin America –Europe – Asia – North America – 2015 9 Africa is In-Efficient, Lacks Transparency and Is Corrupt As the table below produced by the World Bank shows, Africa scores no worse on these measures than India and South East Asia. The real problem in Africa is not its culture but its lack of infrastructure. In a recent World Bank Report, Sub-Saharan Africa was in line with South East Asia with respect to efficiency, transparency and corruption. Africa’s problems relate to its physical infrastructure, not its culture. CRG Corruption (0=High Risk, 6= Low Risk) Bangladesh Transparency Accountability, and Integrity of the Public Sector (1=Low, 6=High) Logistics Performance Index, Efficiency of Customs Clearance (1=low,5=high) 3.0 3.0 2.3 Road Density (Kilometers of road per 100 square Kilometers land area, 2007) N/A Cost to Export (U.S dollar per container) 970 Value to Electrical Outages (Percent of Sales) N/A Cambodia 2.0 2.0 2.3 N/A 732 N/A India 2.0 3.5 2.7 N/A 945 N/A Indonesia 3.0 N/A 2.4 22.0 704 2.4 Philippines 2.0 N/A 2.7 N/A 816 3.4 Vietnam 3.5 3.0 2.7 48.0 555 3.7 South East Asia (median) 2.5 3.0 2.6 35.0 774 3.4 Sub-Saharan Africa 2.3 2.8 2.2 14.5 1.927 6.1 Sources: World Bank, World Development Indicators, International Country Risk Guide and IDA Resources Allocation Index. Road density refers to 2004, and electrical In the same way that many potential investors have been slow to perceive the positive developments taking place in Africa, so they have been slow to lose some of the more common negative misconceptions about Africa. Let’s deal with some of these. Africa Is Too Small to Bother With In terms of stock market capitalisation this criticism is fair...But the same was said about South East Asia before investors began to appreciate the region’s superior economic fundamentals and began to invest in its stock markets in the 1980’s. Africa’s stock markets may still be small as global investors still have to discover them but its economy is not small. By 2020 HS Global Insight predicts Africa’s GDP will be of the order of $5 trillion - larger than the individual economies of Germany, the UK and France - and 60% of the size of these economies combined. Africa Is Too Risky Africa is perceived by many to be high risk but this statement needs to be qualified. It is true that political risk is greater in Africa but this can to a considerable degree be reduced by a prudential spread of investments across Africa’s 17 investable markets. On the other hand, we believe many perceived risks are considerably exaggerated. For instance, the financial statements of most listed African companies are audited by the major international audit firms and the information contained in them can be relied on. Nonetheless, it is true that the statements tend to contain less information than would be found in the reports produced by companies in the developed world, which is why it is essential to have local research teams in Africa visiting companies on the ground. As for African stock markets, in the global financial crisis of 2008-9 no African stock market suspended trading and closed its doors for business, in contrast to a number of markets in the Far East. Nor was there any difficulty in repatriating assets. From STANLIB’s point of view the greatest risk is the relative illiquidity of the markets. African markets trade daily but volumes can be exceptionally low by developed or even emerging market standards, which means any investment in African equities. 10 The Time is Now Africa – Largely Ignored by Global Investors but Already Outperforming for 10 Years Africa accounts for 1% of the world’s stock market capitalisation. STANLIB research indicates only one in two of Europe’s 200 largest pension funds has any direct investment in Africa. However, Africa accounts for 6% of the world’s GDP. Clearly, the world’s largest investors are not going to remain as under-invested in Africa as they are now. It is anyone’s guess as to when the world’s investment community will wake up to the opportunity Africa represents. There are sound reasons to believe early investors will reap the greater rewards. Indeed, Africa’s Frontier Markets have been outperforming the rest of the world for over 10 years already, even though the world’s investment community has largely ignored this. But for how much longer? 10 Years Annualised USD Returns 8.89% 8.52% 4.83% MSCI World 4.15% MSCI EM MSCI FM MSCI FM Africa Source: MSCI; Silk Invest STANLIB Pan-Africa Capabilities STANLIB offers its clients Pan-African solutions for their Africa investment needs. An advantage of the franchise model is that it is an enabler for investment diversification for clients through asset class, portfolio manager and investment styles in order to provide a complimentary solution for its clients’ investment risk and return needs. Below is a depiction of STANLIB’s Pan-Africa Capabilities: EQUITY FIXED INTEREST LISTED PROPERTY ALTERNATIVE ƬƬ Pan-Africa Equity Proposition ƬƬ Pan-Africa Fixed Interest Proposition ƬƬ Listed Property Proposition ƬƬ Africa Direct Property Proposition ƬƬ Infrastructure Investments Proposition SEGREGATED MANDATES STANLIB is able to construct portfolios leveraging our core capabilities in equities, fixed income, property (listed), property (direct), balanced and country/region specific. * Jones Lang La Selle 11 The Pan-Africa Franchise manages a range of listed equity, fixed income and balanced portfolios. Investors are able to choose a pooled solution or can structure a segregated mandate with specific regional exclusions or inclusions. The primary investment objective of the franchise is to achieve medium to long-term capital growth and in the process, outperform the relevant benchmark. The Listed Property Franchise has an outstanding track record as a leading listed property manager with a unique offering across all property markets in the world. The size of our Property Book and our strong ties to STANLIB Direct Property Investments is a clear competitive advantage, while our affiliation with Standard Bank Properties further strengthens our influence when it comes to voting, private placements and liquidity. In addition to doing our own analysis and research, the property team leverages off the greater STANLIB Asset Management team, including the Fixed Income Team, the in-house economists, and the Equity Research Team, for trends in the retail, construction and financial sectors. The STANLIB Direct Property Investment Franchise (SDPI) is committed to delivering long-term inflation beating returns to investors through a quality real estate portfolio. Our investment purpose is making real estate accessible sustainably. These are our three main focus areas: Liberty Property Portfolio Remains a key focus area with a dedicated investment team to drive investment returns for policy holders and match exposure needs. Pan-Africa Portfolio Focus dedicated efforts on building Africa investment opportunities through creating quality stock in high growth areas. Third Party Mandates Ensure that we stay in touch with the market to create exposure for investors to key opportunities and economically growing nodes. The Infrastructure Investments Franchise is focussed on creating a platform that will enable a wide range of investors to gain access to investment opportunities in African Infrastructure. A market traditionally limited to a group of specialist investors and financial institutions. This initiative has evolved through collaboration between us and Standard Bank. Standard Bank has long recognised the infrastructure investment opportunity, one of its core African strategies. It established and developed a highly successful Infrastructure Equity offering and team. The natural progression of this business opportunity, given the limitations of banking regulations and capital constraints, was to evolve into a standalone asset management business. We have acquired the Standard Bank Infrastructure Equity Team, its assets and deal pipeline and are now in a position to offer institutional clients investment opportunities in this exciting new asset class 12 Disclaimer Information and Content The information and content of this document are intended to be for information purposes only and STANLIB does not guarantee the suitability or potential value of any information contained herein. STANLIB Asset Management Limited does not expressly or by implication propose that the products or services offered in this document are appropriate to the particular investment objectives or needs of any existing or prospective client. Potential investors are advised to seek independent advice from an authorized financial adviser in this regard. STANLIB Wealth Management Limited is an authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (Licence No. 26/10/590) This document does not constitute investment advice, an offer, or the solicitation of an offer for the sale or purchase of any investment or security. This is a factual communication. If you are in any doubt about the contents of this document or the investment to which this document relates you should consult a person who specialises in advising on the acquisition of such securities. Whilst every care has been taken in preparing this document, no representation, warranty or undertaking (express or implied) is given and no responsibility or liability is accepted by the STANLIB Group of Companies, its subsidiaries, holding companies or affiliates as to the accuracy or completeness of the information contained herein. All opinions and estimates contained in this report may be changed after publication at any time without notice. Members of the STANLIB Group of Companies, their directors, officers and employees may have a long or short position in currencies or securities mentioned in this report or related investments, and may add to, dispose of or effect transactions in such currencies, securities or investments for their own account and may perform or seek to perform advisory or banking services in relation thereto. No liability is accepted whatsoever for any direct or consequential loss arising from the use of this document. Past performance is no indication of future results. The value of investments may fluctuate and investors may not get back their original investment. Changes in currency exchange rates may have an adverse effect on the value of your investment. Neither this document nor any copy of it nor any statement herein may be taken or transmitted into the United States or distributed, directly or indirectly, in the United States or to any U.S. person except where those U.S. persons are, or are believed to be, qualified institutions acting in their capacity as holders of fiduciary accounts for the benefit or account of non U.S. persons. The distribution of this document and the offering, sale and delivery of securities in certain jurisdictions may be restricted by law. Persons into whose possession this document comes are required by the STANLIB Group of Companies to inform themselves about and to observe any such restrictions. You are to rely on your own independent appraisal of and investigations into (a) the condition, creditworthiness, affairs, status and nature of any issuer or obligor referred to and (b) all other matters and things contemplated by this document. Neither this document nor any copy of it nor any statement herein may be taken or transmitted into the United States or distributed, directly or indirectly, in the United States or to any U.S. person except where those U.S. persons are, or are believed to be, qualified institutions acting in their capacity as holders of fiduciary accounts for the benefit or account of non U.S. persons. The distribution of this document and the offering, sale and delivery of securities in certain jurisdictions may be restricted by law. Persons into whose possession this document comes are required by the STANLIB Group of Companies to inform themselves about and to observe any such restrictions. 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