AIG Global eyes African trade opportunities

Written by James Makau
Mr. Steven Gutenman31-July-2007: Four years ago, the idea of Africa as an investment destination would have evoked little or no interest among the world’s elite investment institutions.

But with economic growth buoyed by improving macro-economic policies in most African countries, the forgotten continent seems like the place to be for global investors.

Keen to tap into this growth, AIG Global Investment Group, soon to be known as AIG Investments, will this week set up operations in Uganda as part of its Pan Africa expansion strategy .

With an estimated US$700 billion in total institutional assets under management and the largest insurance firm under its umbrella, AIG Global is seeking to consolidate its presence in a region it first ventured into nine years ago.

Mr Steven Guterman, senior managing director, global business development at the New York- based firm, said investments were growing in the region.
“Opportunities around the world are beginning to shift and the tremendous opportunities that exist in Africa cannot be ignored,” said Mr. Guterman.

In an interview with the Business Daily, Mr Guterman said the confluence of better regulations, more transparency by governments and increased information flow brought about by technology improvements would spur further investments..

With most of their investments in Kenya are spread out among equities and fixed income, AIG is also looking to grow its private equity partnerships with firms and investors in the region.

AIG last year coughed up US$15 million to acquire a significant minority interest in Blue Financial Services, a pan African Micro-finance company based in South Africa. The firm focuses on providing micro lending products to people with limited access to formal banking.

Considered an early entrant in the insurance arena in emerging market countries, AIG’s investments in private equity and real estate are seen necessary to offset insurance liabilities in many of these countries.

Although he declined to comment .on AIG’s planned private equity transactions, Mr. Guterman said the firm would soon launch a Pan Africa portfolio product for its investors aimed at tapping into African markets.

With the growth of African economies set to accelerate to 5.9 per cent this year on the back of increased demand for commodities as well as sound economic policies, the resurgence of the investment interest in the continent is bound to pick up.

“Africa is clearly going to continue delivering strong returns as economies continue to grow.” says Mr. Guterman.African stock markets have continued to deliver impressive returns with the continent’s two top markets – Nigeria and Botswana – posting returns of up to 50 per cent in the first quarter of the year.

The strong showings by African equities listed at the NSE have not gone unnoticed, with international interest in the country’s markets building up in recent years.

But with only 15 active stock exchanges in Sub-Saharan Africa, the regions equity markets pale in size to other emerging markets worldwide posting a combined market capitalization of US$39.2 billion, excluding South Africa, in 2005.

The Johannesburg Stock Exchange (JSE) is the 16th largest exchange in the world with a market capitalisation of US$ 566billion, accounting for 94 per cent of Sub-Saharan Africa’s total market cap. JSE’s market cap is 14 times larger than all the other markets combined.

With limited growth and lack of expansion by firms in Africa, few are able to list in stock exchangethus leading to a shortage of tradable securities in those markets. A long-term strategy for attracting equity investment has been the focus towards increasing the supply of available securities—since demand will come naturally through the market.

The watershed Sh34 billion Safaricom IPO slated for later this year is seen by many analysts as a step towards solving the shorfall in the supply of equities at the Nairobi Stock Exchange.

The Safaricom offering has also caught the eye of prestigious Wall Street financial firms, a number of whom are looking to partner with local players in the flotation of the mobile telephony company.

And with project financing set to gain prominence in coming years as infrastructure development builds up, Africa will continue to attract international capital, leading to the strengthening of local economies.

“Most economies have taken off with the entry of international capital. Without this capital, local companies can find it very hard to grow.” says. Mr. Guterman.