Chamberlain S. Peterside, Ph.DSunday, November 21, 2004
[email protected]
New York, NY, USA



…Brain Drain.

or years Africa has been losing most of its highly skilled and experienced professionals who migrate abroad in search of greener pastures.

It is estimated that over 5 million African professionals - doctors, dentists, nurses, university lecturers, and engineers work abroad. As a consequence, African countries spend billions of dollars each year on salaries for expatriates who provide so called "technical assistance". For instance, Nigeria is known to have more doctors working overseas than at home, just as expatriates dominate management level in the petroleum sector.

There are only 400 registered doctors left in all of Zambia, and many of Zimbabwe's medical professionals have left recently because of the increasingly unstable political situation. Kenya's Daily Nation reported that Kenya has only 600 practicing dentists, an average of 1 for every 69,000 patients. South Africa also exports thousands of doctors and nurses abroad annually. This situation leaves huge skills deficit in the home countries.

How can you blame these people for abandoning their homeland, when being a qualified professional is no long economically viable? Despite that, colossal amount of scarce funds continues to be spent annually to train new professionals by African countries to no immediate effect, due to high graduate unemployment, discrimination and migration.

…The Flip Side.
But, like every phenomenon in life, there is a flip side to this story - look closer and you would notice an increasing financial reward accruing from brain drain. The current global migration trend is creating a new "Wealth Effect" in poor countries. In 2003 over $300 billion was estimated to have been sent from developed to developing countries according to the organizers of the first African Diaspora Investment Forum in London.

In an era when Africa accounts for a measly 2 percent of global capital flow, Business Day Nigeria reported that Nigerians in Europe and North America control a potential investment fund of $15 billion, while annual private remittance by Africans abroad is estimated at over $12 billion, nearly matching the amount of foreign direct or portfolio investments. Most families would not survive without these remittances.

…Cause and Effect.
In a new global paradigm where technology is diminishing distances and breaking down barriers, African intellectuals abroad are a potential growth engine that could galvanize the continent. Africa has not had a fair shot at sustainable wealth creation because:

  1. Despite the abundance of human and natural resources, Africa has never been a favorite destination for foreign investments. The bulk of foreign capital-flow into Africa is targeted towards the extractive industry, and concentrated in just a few countries - South Africa, Nigeria, Kenya, Angola, Egypt, Morocco, Libya, and Gabon. Taken together, they account for the overwhelming share of foreign capital flow to the continent. Extractive industry investments have not added much needed value to the domestic economy except to accelerate capital flight and create renter-class mentality.

  2. African capital markets are relatively young and underdeveloped. Resulting in low liquidity, very few listings, poor corporate governance, and investor apathy. African markets have been unable to attract substantial portfolio investments from abroad, even with nearly 20 stock exchange markets already in existence in the continent, according to United Nations Development Program (UNDP), total capitalization stands at about $250 billion as at 2003. With South Africa alone accounting for 76 percent of that, followed by Egypt, Zimbabwe, Morocco, Nigeria and Kenya. To put that in contest, Walmart Stores is worth as much as the aggregate capitalization of African stock markets.

  3. Due to insufficient skilled manpower, Africa has been unable to adequately harness the current information technology explosion to drastically improve efficiency, attract hi-tech investments or gain outsourcing dollars like Asian, East European and Latin America countries.

  4. As mono-product economies, overly dependent on export of raw materials and agricultural produce, African economies have been susceptible to the vagaries of global commodities' prices, which diminishes growth potentials by impeding capital accumulation, constraining long-term planning, exacerbating debt crises and causing untold hardship.

These factors have conspired to robe Africa the opportunity of breaking the vicious circle of poverty. Over time some school of thought had maintained that market reform would single-handedly transform African countries by creating enabling environment for foreign investments and subsequently elevating the standard of living.

That remains to be seen, even when some countries have pursued aggressive market reforms, there hadn't been a commensurate level of capital flow from the international community.

…Policy Detour.
The reasons African countries have so far been unable to successfully attract large-scale foreign direct and portfolio investments from the international market is pretty obvious. However, it might well be that policy makers and the organized private sector are coming to terms with that reality and focusing more on a quintessential element of the development continuum. Through recognizing that an untapped avenue for revitalizing their capital markets and indeed the whole economy could be Africans abroad, who might possess the contacts, intellectual wherewithal and financial assets to support economic progress.

There is anecdotal evidence that an increasing number of young women are bringing their hard-earned money into Tanzania to establish new businesses according to a news report on BBC online. Recent investment road shows organized by the Nigerian Stock Exchange around the US and the African Diaspora Investment Forum holding at Wembley in London on November 19th and 20th are some of the pointers. That New Partnership For Africa's Development (NEPAD) Business Group, African Business Roundtable (ABR), and other institutions deemed it fit to host this event only shows how important that investment source is becoming.

The first in the series of such forums was held here in New York City last year April by the African Stock Exchange Association (ASEA) under the able leadership of the Director General of the Nigerian Stock Exchange (NSE), Dr. Ndi Okereke-Onyuike. Even though it was an open forum well attended by international fund managers, for most Africans present, it truly revealed a new approach by the investment community to woo first and foremost a fast growing and new breed of investors. This is a far cry from the laudable but less-productive effort of government officials and Nigeria's President to attract international investors' through frequent foreign trips.

Evidence suggests that the current economic transformation occurring in China and India and other Asian countries were spearheaded by the nationals of these countries resident abroad.

As a key driving force for the capital market, it is pertinent to note that the current capitalization of some individual stock exchanges in Africa is less than the total private remittance from abroad. Secondly, the amount of remittance recorded surpasses the total foreign direct investment in most countries. Analyses show that only 6 percent of such remittances are channeled towards investment purposes. A concerted effort could change all that as the ratio targeted towards investments grows.

…New Emerging Markets.
Some experts have dubbed African stock exchanges as the new emerging markets. As the investment road-shows continue, efforts to create regional exchanges, encourage cross-border listing, increase the number of traded securities, enhance transparency, and improve corporate governance could all help to attract these new breed of investors. Published statistics show that some African stock exchanges are already top performers amongst stock exchanges globally - Ghana, Nigeria, Botswana, Zimbabwe, have been consistently posting double-digit returns over the last 5 years, as the advanced capital markets remain in the doldrums.

A major advantage of African capital market is the lack of correlation with developed markets. Therefore an event in the global capital market doesn't necessarily impact African stock markets. This could be a strong proposition for both individual and institutional investors seeking to diversify their portfolio.

Market sentiments are a major determining factor in investor decision-making process, just as the herd mentality plays a key role in capital flow in the international marketplace. Despite some of the obvious advantages and improvements recorded by African capital markets, it is still an uphill task to persuade global money managers to take Africa seriously and invest in large scale. One silver lining however could be the growing financial resources of Africans in the Diaspora and the potential influence they could wield both individually and collectively, if and when they truly turn their attention toward that direction.

…Harnessing the Growth Potential.
My discussions so far indicate a growing interest in the current market activities going on in the continent. Nigeria for one has had a spate of new listings in the market thanks to ongoing privatization and banking reforms. The problem still remains how to effectively target or mobilize idle resources. Some key steps would be:

  1. For African Stock Markets Association (ASEA) to develop a target list and create database of interested fund managers and individual investors gathered from various sources - investment conferences and road shows. Keep these target groups apprised of new developments, progress and market trends in the continent. Invite such entities to major industry events taking place at home or abroad and utilize their ideas and inputs in fine-tuning marketing strategy.

  2. Aggressively pursue ongoing effort toward modernization, by improving market liquidity, strengthening corporate governance, streamlining regulations, and entrenching market transparency, enabling free and efficient flow of market information throughout the continent and in the global arena.

  3. Encourage cross-border listings of securities within regions and the continent at large, as a stepping-stone toward overseas quotation of African blue chip companies. Create a secondary market for listing of smaller, up and coming companies.

  4. Assist qualified domestic companies to tap into the international capital market through issuing Depositary Receipts and debt instruments in major markets such as American Depositary Receipts (ADR), preferred securities or corporate bonds, thereby mitigate country or exchange risks and enable overseas inve stors to plough money into viable African companies.

  5. Target professional associations - medical, accounting, IT, etc. as well as community groups abroad and conduct seminars and focused investment presentations during annual conventions and meetings. Encourage local brokerage firms to reach out to foreign counterparts and establish mutually beneficial relationships to serve prospective investors and clients.

Without sounding overly altruistic, it is fair to point out that fundamental problems still persist in those markets. Such as lack of transparency, information asymmetry, outdated trading platform, price manipulation, low risk appetite by domestic investors and questionable management practices. Depending on the severity of these problems, some countries would ultimately surmount them over time through consistent and bold reforms.

Chamberlain is the Founder & President of New Era Capital Corp. and MyCompleteFinance.com, a New York based financial services group. He was previously a Financial Advisor in the Global Private Client Group, of Merrill Lynch.