Presentation by Dr Ayo Salami on African Capital Markets. Presented on May 8, 2010 at London Business School's Africa Day Conference.

1. Africa - the last
frontier market
May 2010

2. Africa – the last frontier market
Presentation
London Business School
Africa Day -
8 May 2010
Dr Ayo Salami
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4. African Equity Markets
From Cape to Cairo
There are 22 stock exchanges in Africa with
a combined market value of US$1,107.5
billion and 2,084 listed equities
Number of
Market Value listed companies
Sub-Saharan $78.7 bn 465
Africa (ex –SA)
South Africa $370.7 bn 427
North Africa $166.1 bn 1,116
Dual Listed stocks $492.1 bn 76
Data as at 31 March 2010
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5. Equity returns among the best in the world
Average annual returns to various regions (2000 to 2009)
13%
11%
9%
7%
5%
3%
1%
-1%
-3%
Emerging Markets
Eastern Europe
Far East
G7 Countries
Latin America
North Africa
Asia
South Africa
Sub-Saharan Africa
Source: MSCI, African Business Research Africa has outperformed emerging markets in
particular Asia over the last 10 years
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6. What about volatility?
“Give a dog a bad name”
Standard deviation of annual returns (2000 – 2009)
60%
50%
50%
43%
42%
39% 38% 37% The risk from
40% 34%
33% investing in Africa
28%
30% is similar to that of
23%
other emerging
20%
markets.
10%
The perception
0% that Africa is
North Africa
Latin America
Eastern
Emerging
Asia
Far East
South Africa
Sub-Saharan
World Small
G7 Countries
Europe
Companies
Markets
inherently riskier
Africa
is not supported
by data
Source: MSCI, African Business Research
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7. Economy and equity markets moved in opposite
directions
The recent share price performance has not reflected the true profit
performance of companies
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Earnings Growth Index Growth
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8. Recent correction has created attractive entry point for
long term investors
The combination of price decline and earnings growth has created a unique buying
opportunity for the long term investor. Despite a decade of significant economic growth,
valuations are back to levels seen in 2000
30 2.5
25
2
20
1.5
PEG Ratio
P/E Ratio
15
1
10
0.5
5
0 0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
P/E ratio PEG Ratio
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9. Lose on the currency swing
Gain on the growth roundabout
Sub-Saharan Africa equity returns in US$ since 2000 (excluding South Africa and Zimbabwe)
430% Despite currency 15%
depreciation, cumulative
380% $returns are positive
10%
averaging 8% per annum
330%
Annual % loss on currency
Cumulative $ returns (%)
5%
280%
230% 0%
180% -5%
130%
-10%
80%
-15%
30%
-20% -20%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Annual % loss on currency Cumulative $ returns
Source: Local Stock Exchanges, African Business Research
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10. Correlation with other global markets
Low correlation with other global markets offers
diversification opportunities
Correlation matrix between regional equity markets
World
Emerging G7 Latin South World
Africa Asia Far East Small
markets Countries America Africa Index
Companies
Africa
100%
(ex South Africa)
Asia -9% 100%
Emerging markets -7% 88% 100%
Far East -10% 99% 86% 100%
G7 Countries 12% 18% 43% 17% 100%
Latin America -14% 6% 44% 5% 57% 100%
South Africa 3% 42% 58% 40% 22% 7% 100%
World Index 14% 21% 46% 20% 99% 57% 24% 100%
World Small
14% 22% 46% 21% 90% 46% 28% 90% 100%
Companies
Correlation coefficients based on daily equity returns between 1/1/2000 and 29/09/2008
Source: MSCI, African Business Research 10

11. Investment strategies
Key sectors for equity investors
• Banks
• Telecoms
• Breweries
• Construction and cement
• Consumer goods
Increasing number of investment vehicles are becoming available. In the last 3
years about 10 new Africa focused funds have been launched
Research can be challenging but fun
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12. Trading and settlement
Love thy neighbour – but don’t take counterparty risk
Central
Country Trading system Settlement cycle depository
Algeria Electronic t+5 Yes
Botswana Call over t+5 yes 12 countries (94% of the stock
BRVM Electronic t+5 Yes
Cameroon markets – ex South Africa)
Cape Verde
Egypt Electronic t+2 for active shares Yes
have electronic and automated
t+3 for dematerialised shares trading platforms. More
t+4 for physical shares
countries are already planning
Ghana Call over t+3 yes a switch over.
Kenya Electronic t+5 Yes
Malawi Call over t+7 yes
Mauritius Electronic t+3 Yes
Morocco Electronic t+3 yes
Mozambique Also more markets are moving
Namibia Electronic t+3
Nigeria Electronic t+3 Yes towards the international
South Africa Electronic t+3 yes standard of t+3 settlement
Sudan
Swaziland Call over t+5 cycle
Tanzania Electronic t+3 yes
Tunisia Electronic t+3 yes
Uganda Electronic t+5
Zambia Call over t+5 yes
Zimbabwe Call over t+7
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