Growth Signs

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Midway through the year, capital markets in Africa and the Caribbean are showing signs of growth, but there are dangers lurking ahead. Sub-Saharan Africa’s overall economy is forecast to grow by 5.1 percent this year and 5.4 percent in 2012, but high food and fuel prices could slow its economic recovery, the World Bank said on May 12.  Investor optimism is growing, with hoarded cash now being put to use amid prospects for a global stock rally to start in the emerging and frontier markets.

Kenya’s stock market was boosted in early May by investors buying shares in a number of firms due to pay dividends. Further support may come from rising demand for banks, which report first-quarter results later in the month. Meanwhile, businesses are expanding, with merger-and-acquisition activity heating up and several companies listing on the stock exchange. Kenya’s petroleum retailer KenolKobil plans to invest $10 million in real estate projects in several African countries amid growing business confidence. In South Africa, gold producer Gold One is expected to be bought by a company from New Zealand. South African Reserve Bank continues to weaken the rand to enable local companies to increase exports.

Dabur India Ltd, which makes packaged honey and hair oil, in May announced plans to set up two new factories and introduce more products in Africa. The factories in Johannesburg and Nairobi will start production by June next year, joining two others already in Nigeria and Egypt. A McKinsey & Co report says consumer spending in Africa may double to as much as $1.8 trillion by 2020 as infrastructure improves and farm output increases. The continent’s GDP is expected rise to $2.6 trillion by 2020 from $1.6 trillion in 2008, the report says.
In Jamaica, financial services firm PanCaribbean and agribusiness firm Caribbean Producers Jamaica Ltd. (CPJ) are expected to list in the JSE this year, becoming the latest addition to a prosperous bourse. PanCaribbean, which reported its best quarterly performance of $500,000 in net profit at the end of March, is moving into new business areas to shore up revenue. The company is also completing a private debt and equity placement for $10 million.

Some policy changes may come in handy. Jamaica’s government is planning to reform its tax system to make it more business friendly, which should attract more investors to the market. Research and development tax credits as well as a reduction in corporate taxes have been proposed. However, some investors remain nervous about the future, which is why bond yields are rising.

Frontier market investors are seeking more interest on their money while shifting away from long-term securities. Part of the problem is the wildly swinging commodity prices amid speculation that high prices may curb demand for petroleum and agricultural products and precious metals that form the backbone of African and Caribbean economies.