The ‘Africa Rising’ rhetoric from within the sub-Sahara Africa economic region continues apace with the prediction that it will yet again post strong economic growth numbers. Both the World Bank and the African Development Bank (AfDB) have forecast that growth will hit the 6% mark, continuing a trend of several years. The IMF predicts a growth of 6.5%, compared with 2.8% this year in the US and 1.7% for Japan. Only China’s economic growth numbers are higher. Relatively speaking, there is no doubt that sub-Saharan Africa is still on the up.

However, underlying the seemingly sweet sound of economic success is continuing dissonance from the familiar governance and credibility concerns. At the Africa CEO Forum held in Geneva in March 2014, AfDB president Donald Kaberuka warned against complacency on these issues. Yes, the region might be growing fast but the Africa Rising view may be “another false dawn”, he said.

Over recent years, the AfDB has marked “strengthening governance interventions” as a strategic priority. In 2000, it introduced its Good Governance Policy. This was followed by another key step in 2008 known as the Governance Action Plan 2008-2012, which aims to “assist in building capable and responsive states by strengthening transparency and accountability”.

This strengthening of capital markets in the region plus regulatory reform in the areas of governance and accountability is a two-pronged approach to address the need for home-grown capital, and is essential if Africa is to meet its wider goals to reduce poverty and

create wealth.

“In terms of corporate governance and credibility issues, yes, it is a task because the continent is varied,” says Humphrey Gathungu, manager of the Africa Equity fund at Stanlib, the asset management arm of South Africa’s Standard Bank. “But a large number of markets are fairly developed and have adopted IFRS rules on reporting. Six or seven years ago, you would have had a varied standard of reporting on the continent, [and it is still the case that], for example, the level of disclosure and compliance within sub-Saharan Africa is lower than within a company listed in South Africa, where you will find that you have a lot more information to work with. However, currently most of the markets have migrated into the adopted international reporting standards.”

Stanlib’s key investment markets are Nigeria in the west, Kenya in the east, Zimbabwe and Mauritius. “We also have investments in North Africa, in Egypt and Morocco,” says Gathungu. “Our three main areas of expertise are listed equities and fixed income, which includes sovereign debt and unlisted debt. The third pillar of our operations outside South Africa, are asset management businesses located in Kenya, Uganda, Swaziland, Lesotho, Botswana and Namibia.”

The slow, intractable slog towards more solid and credible governance does not preclude investment in the region by African institutional investors. Francophone economies in the region generally do not have a tradition of using pension funds as a savings instrument. In Senegal, for example, employees of Sonatel (the main telecommunications provider, part-owned by France’s Orange) save into a mutual savings fund. However, countries like Nigeria, Ghana, Kenya and South Africa have reformed their pensions industries for two reasons: primarily to widen access to savings vehicles to a growing working population; but also to allow pension funds to access – and support – emerging capital markets.

Pensions and savings funds – as well as the sovereign wealth funds established by those countries endowed with substantial natural resources, like Nigeria and Botswana – are crucial to the Africa Rising economic and financial-market project.

The global economy is recovering slowly from the financial shocks of 2007-08. The US decision to begin tapering its liquidity provision, much of which has flooded into emerging markets over recent years, is focusing the minds of sub-Saharan African policymakers and investors on the need to cushion, as much as possible, the region from external economic and financial shocks. The region needs long-term access to domestic funds – not highly-mobile global hot money – if it is to meet its socio-economic goals.

“Pension funds provide long-term sources of capital much needed for infrastructure development,” says Gathungu. “The multiplying factor that this capital can bring is immense.”

In Nigeria, the average exposure of pension funds to equities is less than 10%, while in Kenya the average pension fund would have less than 25% allocated to equities.

“Western counterpart pension funds would have a higher exposure to equities,” Gathungu says. “[In Africa the issue is] low penetration – not many people have access to a vehicle for savings. Those that do have a lower allocation to growth assets such as equities.”



There is a lot of money at stake. Sub-Saharan African economies are shifting fast towards becoming consumer economies and away from commodities and agriculture. This is an important point; the Africa Rising narrative is based not only on strong growth numbers being posted but also on the view that the continent’s young, entrepreneurial population presents opportunities to tap into savings and pension funds. In effect, the shift towards a consumer-based economy means a source of capital that should enable this trend to feed upon itself.

A development arising from pension reform in the region means that larger government funds, for example, or those held by large institutional investors like Stanlib, can invest more in private equity and alternative investments (in the case of South Africa).

“Investors are more interested in investing in instruments that are regulated,” says Olano Makhubela, chief director at the South Africa Treasury’s financial investment and savings unit. “So the moment you enable investments into private equity or hedge funds and other alternatives as a regulator, what you are also saying to the public is that it can derive some form of comfort investing in those [types of] assets.”

Private equity capital is flowing into the region to take advantage of the changing face of its developing consumer-based economies. And although South Africa is the largest private equity market, according to the accountancy firm Ernst & Young, “opportunities beyond its borders are beginning to attract more interest”.

The most recent data on private equity inflows show that although private equity fund raising in sub-Saharan Africa slowed down in 2013, total capital invested in the region reached a five-year high, increasing by 43% from $1.1bn (€790m) in 2012 to $1.6bn in 2013, according to the Emerging Markets Private Equity Association. Pan-sub-Saharan vehicles accounted for 92% of capital raised.

Key private equity players in sub-Saharan Africa include global names like Actis, Aureos Capital, Bain Capital and Standard Chartered. SilkInvest, for example, is a niche company working in partnership with local firms. There are also pan-African players headquartered abroad such as Helios Investment Partners, while African Capital Alliance, Catalyst Principal Investments and Salt Capital are local firms.

“Africa is a large continent and some of these benefits will take some time to [materialise] but we are at least beginning with enabling an environment which would facilitate investment into Africa, particularly infrastructure,” says Makhubela. “This is where private equity can play a large role. South African private equity invests a large portion of its funds in infrastructure.”

The outlook for sub-Saharan Africa remains mixed, understandably for a frontier market which is large and varied in terms of the sophistication of its financial and capital market traditions, regulatory environment and standards of governance and accountability.

Changes to allow wider pension fund investment in a range of asset classes enables the industry to grow and to attract funds, which will be generated from its economic growth and the changing nature of that growth.