Country and sector weights in an Africa regional-sleeve

Growth and the inward-fdi map

By 2007, continental real GDP growth was reported above 5% for a fourth straight year. The same setting included a positive fiscal balance, more inflation-targeting central banks, and still-high poverty.

Inward-fdi rose from 2.4 billion dollars in 1985 to 36 billion dollars in 2006 and then held at that level in 2007. That rise did not lift the region's share of global FDI.

In 2006, five hosts absorbed most regional inward-fdi: South Africa 24%, Nigeria 13%, Egypt 12%, Morocco 10%, and Tunisia 7%.

Commodity prices as an incomplete driver

Commodity prices were treated as a major but incomplete growth driver. Higher metal and soft-commodity receipts were offset by costlier food and energy imports. Inward-fdi clustered in natural resources and services rather than manufacturing.

Venues, liquidity, and the frontier-market split

Venues cited for a regional-sleeve included South Africa, Egypt, Morocco, Tunisia, Namibia, Botswana, Nigeria, and Kenya. South Africa's exchange, founded in 1887, was described as the continent's largest, with developed equity and derivatives markets.

South Africa was treated as outside the frontier-market bucket, with dedicated local listed-wrappers available. The cited markets were characterized as sharing a small listed universe, thin liquidity, and high-volatility risk.

Country-concentration in listed-wrappers

One Middle East and Africa index product held 341 names at year-end 2007. On 10 July 2008 it allocated 52.82% to South Africa, 8.91% to Morocco, 6.78% to Egypt, and 1.42% to Nigeria.

A fifty-name Africa index launched in July 2008 required more than 200 million dollars of capitalization. The related listed-wrapper's 9 July mix was Nigeria 25%, South Africa 24.7%, Egypt 13.1%, and Morocco 11.4%.

A July 2008 Middle East and North Africa wrapper placed 20.6% in Egypt and 13.32% in Morocco. A September 2008 Middle East and Africa fund showed African weights of Egypt 16.4%, South Africa 9.8%, and Nigeria 0.9%.

Sector-stack behind the geography label

The July 2008 Middle East and North Africa wrapper placed financials at 55.1%, telecommunications 19.05%, industrials 12.48%, and materials 10.36%.

The fifty-name Africa listed-wrapper mixed banks 33.7%, basic resources 18.2%, oil and gas 13.5%, telecommunications 10.2%, and technology 7.3%. The September 2008 Middle East and Africa fund held financials at 57.7%.

How the construction audit sizes the sleeve

Editorial reading: asset-allocation sets how large the regional-sleeve may be only after liquidity, country-concentration, and the rest of the book are known. Diversification holds if the sleeve's drivers and constraints differ from the core book, not because the geography label is new.

Editorial reading: industry-rotation among banks, resources, energy, telecoms, and other groups is the mix decision when the regional weights or the commodity regime change. If the residual after the large hosts and the bank-and-resource sector-stack is small, the sleeve restates those same exposures rather than adding a distinct growth-and-liquidity regime.