The £2 billion London listing of Shell retailer Vivo Energy, which raised £548 million in May, was the LSE’s biggest such deal so far this year. It is the largest IPO out of Africa to take place in London since 2005: but is it a sign that the Africa-rising narrative is back?
In fact, Vivo’s timing probably has less to do with an African resurgence on the back of a tentative commodities recovery – let alone thanks to occasionally favourable political trends – and more to do with the investment cycle of owners Helios (private equity) and Vitol (the oil trader). What it does show is that the African demographic and consumer story still appeals to investors. The question has always been which of the continent’s multifarious nations can benefit from this belief in Africa’s growth.
South Africa, home to the continent’s biggest banks and financial market, has rarely been subject to this kind of enthusiasm over the last decade. Despite huge improvements in the quality of life for the majority of South Africa’s population since the end of apartheid, per-capita income started to decline after 2015. That was partly a political problem. The replacement this year of former president Jacob Zuma with trade unionist-turned-businessman Cyril Ramaphosa has unleashed a burst of business confidence.
Ramaphosa’s choice of Pravin Gordhan for public enterprises minister has made it more likely that firms such as electricity supplier Eskom can raise the capital they need.
It was a symbolically important nomination, especially given the damaging tension between the parastatals and Gordhan when he was Zuma’s embattled finance minister.
Nhlanhla Nene, whose removal from the finance minister’s post in 2015 was another blow to South Africa’s international image, is another welcome return.
Harsh environment
Yet despite the welcome news that Ramaphosa had replaced Zuma, global coordinators Citi, Credit Suisse and JPMorgan sold Vivo on the basis of its presence across the continent rather than in South Africa, where growth in consumption is more reliant on borrowing.
Clearly, Ramaphosa has plenty on his plate, not only with domestic issues such as land reform and mine ownership, but also because of an increasingly harsh international environment for emerging markets.
In Zimbabwe and Angola, banks and investors must similarly recognize both the potential and the challenges of new governments.
There are common points between all three, notably southern Africa’s later liberation from colonialism and white rule than the rest of Africa.
In the last few months, the arrival of new presidents – for the first time in around 40 years in Zimbabwe and Angola – reflects a power shift in ruling parties, as well as a generational change; the platitudes associated with the struggle for independence work less well now at silencing discontented youth.
The job of convincing investors of a radical and immediate move away from the economic problems of the past is far from over
Talk by pundits in London of a southern African spring might be met with a quizzical look in Angola, for example. Its situation is in some respects closer to the Arab Gulf.
As in the Middle East, the fall in the oil price has underlined the need for the country to open up and diversify from oil, although its per-capita income is radically different from that in the Gulf.
Selling bits of the state oil company will be much harder in Angola than in Saudi Arabia. Parastatal Sonangol has gone way beyond oil as an actor in the economy, with interests in sectors such as banks and telecommunications. It could and should sell those stakes, yet foreign strategic buyers may be locally politically contentious. Wealthy local entrepreneurs untarnished by government links are hard to find. Isabel dos Santos, daughter of former president José Eduardo dos Santos, is the best-known and probably richest businessperson.
Angola’s stock exchange, launched in 2014, for now only trades government bonds. Without a dramatic improvement in financial management and transparency, state-owned firms are unlikely to be among the candidates for the first domestic IPO.
Closing the gap
Angola’s move this year to a currency auction system and a looser peg to the dollar has closed the gap with the parallel market, which makes it easier for banks to provide trade finance to locals. The next step would be to liberalize the capital account, allowing foreign portfolio investors to buy treasury bills and commercial paper. At present, they can only invest in maturities of more than one year.
After the oil-price crash, some foreign counterparties deserted Angolan banks. The new government has installed a new board of directors at state-owned BPC, the country’s largest bank, and one of its worst.
Setting up a bad bank in 2016 to buy loans from BPC was a good move, although the execution attracted criticism from ratings agencies over the lack of transparency.
Above all, Angola’s new government must tackle the country’s reputation for nepotism and corruption, both at home and abroad, as in South Africa and Zimbabwe.
The removal of Isabel dos Santos from the top of Sonangol and of her brother José Filomeno from the top of Angola’s sovereign wealth fund, is crucial in this regard. In a sign of greater openness, new president João Lourenço has even started to give press conferences.
This and other improvements might make it easier for foreign banks and investors to engage.
Nevertheless, the job of convincing investors of a radical and immediate move away from the economic problems of the past is far from over.
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