Portfolio flows into Africa may be falling but this marks a readjustment in the way investors interact with the continent, says Chinelo Anohu-Amazu, head of Nigeria’s National Pension Committee (PenCom).
“There is a lot of talk around retrenching from Africa but I’m not seeing this at all,”Anohu-Amazu says. “Look at what the International Finance Corporation (IFC) are doing in the region for instance. If you look at the amount of money they are putting into Africa, I wouldn’t say this meant that investment was scaling back at all.”
Most recently, the IFC has leant $25m to support the expansion of Nigerian dairy company, Promasidor, invested $200m in Guinea’s bauxite mining sector and arranged a financing package to expand Ghana’s seaport to boost trade.
Although the IFC as part of its mandate often invests in sectors and countries that are not as popular for mainstream investors, for Anohu-Amazu, this highlights an interesting point: “Institutions such as the IFC are coming into Africa because there are still obvious returns to be made – impact investing can still be profitable.”
Anohu-Amazu’s statements come at a time when private equity – the long-term investment vehicle often heralded as complimenting Africa’s long-term development needs – in the continent appears to be losing its shine.
In September, Marlon Chigwende announced his departure from Carlyle, and in August, Peter Baird was removed as Africa head from Standard Chartered private equity team. Meanwhile, it is rumoured that John van Wyk may be leaving his post as head of Africa at Actis.
According to the African Economic Outlook Report 2016, published by the AfDB, the OECD and the UNDP, portfolio flows into Africa have fallen from $23bn in 2014 to $13bn in 2015. In the second half of 2015, there was a net portfolio exit of equity while bond flows remained relatively stable. Remittances are still the most important source of external finance accounting for $64bn in 2015.
“Portfolio flows in and out of Africa can be more reactionary,” says Anohu-Amazu. “Many of these investors will be waiting to see how policy changes react to recent economic headwinds affecting the region.”
The recent fall in commodity prices, inflation and stringent foreign exchange policies that commodity producers have introduced in response to fiscal and economic pressure has been a turn off for some investors. Nigeria, one of Africa’s major oil producers, has seen foreign direct investment fall 27% from $4.7bn in 2014 to $3.4bn in 2015.
“Foreign exchange receivables from oil in Nigeria have fallen which in itself reduces portfolio flows into the country, but the downturn in the global oil price marks a period of readjustment for commodity and oil exporters, and we hope that in Nigeria, this will mean that government policy will reinvigorate investment into agriculture and technology for instance,”says Anohu-Amazu.
“I don’t think there is a scaling back in terms of investment into Africa, more a realignment. Investment into the continent is changing,” she adds.
While international investment into the continent may be drying up in the short-term, African countries, including Nigeria, are looking to leverage off domestic markets to boost growth and fill the infrastructure gap.
Nigeria’s burgeoning pension fund sector is increasingly looking to alternative investments to achieve this. In June 2016, total assets under management for PenCom reached N5.73 trillion up from N2 trillion in 2010 with an average annual growth of 20%. Around 11.43% of Nigeria’s total labour force and 3.95% of the population contribute to a pension, but new initiatives coming in to increase this.
“Our micro pension initiative aims to attract contributions from the 20m Nigerians who work in the informal sector. The rules for these types of contributors will be more flexible, however, to fit in with the way in which they work,” says Anohu-Amazu.
“Education around pensions will also be a key part of the initiative.”
But only a fraction of assets under management are allocated to alternative investments in Nigeria. According to PenCom, while 5% of total assets can be invested in private equity, as of June 2016, only 0.33% has been allocated to this sector. Similarly, 5% of total assets under management can be invested in infrastructure, but only 0.3% of the fund is invested here.
The majority of investments are still in traditionally safer government bonds at 67.36% of total assets under management. “We have provisions for alternative investments in things such as infrastructure, but there remains a dearth of investment vehicles that we can invest in,” says Anohu-Amazu.
“We can’t look to make such vehicles as this would be a conflict of interest, but we are in discussions with others who are looking to create such instruments and we are hopeful that they will come online in the near future,” she adds.