|Chamberlain S. Peterside, Ph.D||Sunday, November 21, 2004|
New York, NY, USA
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… AFRICANS IN DIASPORA AS GROWTH-DRIVER FOR THE CAPITAL MARKET?
or years Africa has been losing most of its highly skilled and experienced professionals who migrate abroad in search of greener pastures.
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:
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.
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:
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.