Summary

• African markets were 0.2% weaker in April. One of the better performing markets was Nigeria which was 1.9% up driven by a 15.0% increase in oil and gas and 12.3% in the consumer sector. Mauritius was also strong, driven by Greenbay Properties which was up 28.3%. This performance was counteracted by Kenya which was down 6.9% driven by a 5.8% drop in the banks and financial sectors and an 8.2% fall in Safaricom. Morocco (-0.9%) was weak across the board.
• The Fund performed in line with the Index, however performance was varied across the regions.  Fund strength came from Choppies in Botswana which was up 22.2% and the oil and gas sector in Nigeria. This was offset by GT Telecom in Egypt which was down 21.9% and Centum in Kenya which was down 4.9%. Kenyan banks and financials and Egyptian consumers (-1.7%) also negatively affected the Fund’s performance.

Market update - Africa growth expectations confirmed by the International Monetary Fund (IMF)

The IMF published their semi-annual update to their World Economic Outlook this month. The new forecasts now include 2023 and they have re-affirmed their outlook for growth for the continent that is expected to be better than the world and significantly faster than that for advanced economies.

The following graph show the GDP forecasts for Africa excluding South Africa (the region in which the Fund invests).

GDP growth rate (%)

^{Source: IMF, World Economic Outlook, April 2018, Ashburton}

The IMF expect that oil exporters in Africa will have slower growth than the rest of the continent.  This is probably in line with their expectation that Brent crude oil prices will weaken to the mid US$50/bbl level over the next five years.

A strong rise in oil prices coincided with the Africa rising narrative of the first decade of this century. The exceptional growth that these oil exporting countries achieved as oil prices rose from levels of around US$20/bbl to around US$110/bbl “distorted” the narrative by making it look even better than it really was if oil exporters are included in the continent’s numbers. In the subsequent decade, as oil prices fell to around US$30/bbl and many oil exporting countries entered recession, African GDP growth slowed and this led many to believe that the Africa rising narrative was over. 

In the following graph we have shown the weighted GDP growth for African countries (excluding South Africa and the following oil exporters: Algeria, Angola, Chad, Congo, Eq. Guinea, Gabon, Nigeria and Sudan). It is important to note that only Nigeria in this grouping has an investable equity market.

GDP growth rates for Africa ex South Africa and excluding oil exporters (Algeria, Angola, Chad, Congo, Eq. Guinea, Gabon, Nigeria, Sudan)

^{Source: IMF, World Economic Outlook, April 2018, Ashburton}

Despite the slowdown in growth in the recent eight years caused mainly by the Arab Spring in Egypt, Libya and Tunisia, the Africa rising narrative is clearly intact and growth to close to 6% is expected by 2023. This growth is similar to the emerging and developing Asia growth expected by the IMF of between 6.2% and 6.5% over the next four years. This matches the thesis that African countries are developing at a quick pace despite the current infrastructure deficit that is being addressed.

With equity markets only just recovering to levels of five years ago, but growth continuing for many of the underlying businesses, there is clearly still legs for significant future returns through active management and stock selection.

Fund activity

The Fund has maintained its total exposures to Kenya and Nigeria broadly in line with the index, although the underlying holdings vary considerably. The Fund still has its largest exposure to Egypt, where the Egyptian pound has started strengthening. Morocco remains the Fund’s largest underweight as we view the market as expensive.

Outlook

With many economies across the continent on a recovery path and inflation declining, we expect interest rates to start coming down. This will be positive for equity markets that will also start anticipating the generally improved economic outlook for the continent in 2018 and beyond.