Todd Moss, Vijaya Ramachandran, and Scott Standley

Why Doesn’t Africa get More Portfolio Investment?Frontier Stock Markets, Firm Size, and Asset Allocations of Global Emerging Market Funds

Frontier equity markets

15 mkts SA dominates Others small, low liquidity Few large blocks available But not unusual

BOTCIV

GHAKEN

MUS

NAM

NGR

ZAF

ZAM

ZIM

68

1012

14Lo

g m

arke

t cap

italiz

atio

n

8 10 12 14Log GDP

Log market capitalization vs. Log GDP

Log value traded vs. Log market capitalization

BOTCIVGHA

KEN

MUS

NAM

NGR

ZAF

ZAM

ZIM

05

1015

Log

valu

e tra

ded

6 8 10 12 14Log market capitalization

Regional Funds

0

2

4

6

8

10

12

14

16

1990 1994 1998 2002 2006

num

ber o

f fun

ds

South Africa only

Pan-African

GEM fund investment, 1995-2005

0

20,000

40,000

60,000

80,000

100,000

120,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

US$

mn

Source: EmergingPortfolio.com Fund Research

2005: $98 bn

South Africa GEM investment, 1996-2004

(3 year moving averages)

1,573 1,568

2,3592,709

2,889

2,402

3,221

5,166

7,399

4.6%5.1%

6.3%

7.0%6.7% 6.6%

7.1%

8.9%

9.5%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1996 1997 1998 1999 2000 2001 2002 2003 20040.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Left scale - GEM investment(US$ mn)

Right scale - share of totalGEM investment (%)

Source: EmergingPortfolio.com Fund Research.

GEM investment in Frontier SSA(1996-2004, 3yr moving averages)

160 131 88 80 80 60 63 50 42

0.45%

0.38%

0.26%

0.22%

0.19%0.16%

0.15%

0.10%

0.06%

0

20

40

60

80

100

120

140

160

180

1996 1997 1998 1999 2000 2001 2002 2003 20040.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

0.40%

0.45%

0.50%

Left scale - GEM investment(US$ mn)

Right scale - share of totalGEM investment (%)

Source: EmergingPortfolio.com Fund Research.

Share of GEM investment vs. Log market capitalization

BOTCIVGHAKENMUSNAM NGR

ZAF

ZAM ZIM

0.0

5.1

.15

.2S

hare

of G

EM

inve

stm

ent

6 8 10 12 14Log market capitalization

No country with market cap under $50 bn receives more than 1% of total GEM investment

Market cap = $50 bn

Share of GEM investment vs. Log value traded

ARG AUTBAHBANBOT

BRA

BULCHL

CHN

COLCIV CROCYP CZEECUEGY

ESTGHA GRCHKNHUN

IND

INOISR

JORKAZKEN

KOR

LATLEB LIT

MLY

MUS

MEX

MARNAM NGROMA PAKPAN PER PHL POLPRTROM

RUS

SGNSLVSLN

ZAF

SLK

TAI

THA

TUN

TUR

UKR VENZAM ZIM

0.0

5.1

.15

.2S

hare

of G

EM

inve

stm

ent

0 5 10 15Log value traded

Value traded = $10 bn

No country with value traded under $10 bn receives more than 1% of total GEM investment

Log GEM investment vs. Log market capitalization

BOTGHA

KEN

MUSNGR

ZAF

ZIM

02

46

810

Log

GE

M in

vest

men

t

6 8 10 12 14Log market capitalization

Log GEM investment vs. Log value traded

BOTGHA

KEN

MUSNGR

ZAF

ZIM

02

46

810

Log

GE

M in

vest

men

t

0 5 10 15Log value traded

Share of GEM funds vs. Log market capitalization

ARG

AUT

BAHBANBOT

BRA

BUL

CHL

CHN

COL

CIV

CRO

CYP

CZE

ECU

EGY

ESTGHAGRC

HKN

HUN

IND

INO

ISR

JOR

KAZKEN

KOR

LATLEB

LIT

MLY

MUS

MEX

MAR

NAM NGR

OMA PAKPAN

PER

PHLPOL

PRTROM

RUS

SGN

SLV SLN

ZAF

SLK

TAI

THA

TUN

TUR

UKRVEN

ZAMZIM

0.2

.4.6

.81

Sha

re o

f GE

M fu

nds

6 8 10 12 14Log market capitalization

Share of GEM funds vs. Log market capitalization

ARG

AUT

BAHBANBOT

BRA

BUL

CHL

CHN

COL

CIV

CRO

CYP

CZE

ECU

EGY

ESTGHAGRC

HKN

HUN

IND

INO

ISR

JOR

KAZKEN

KOR

LATLEB

LIT

MLY

MUS

MEX

MAR

NAM NGR

OMA PAKPAN

PER

PHLPOL

PRTROM

RUS

SGN

SLV SLN

ZAF

SLK

TAI

THA

TUN

TUR

UKRVEN

ZAMZIM

0.2

.4.6

.81

Sha

re o

f GE

M fu

nds

6 8 10 12 14Log market capitalization

>90% of funds and >$150 bn market cap

Outgrown asset class

<10% of funds and <$20 bn market cap

Share of GEM funds vs. Log value traded

ARG

AUT

BAHBANBOT

BRA

BUL

CHL

CHN

COL

CIV

CRO

CYP

CZE

ECU

EGY

ESTGHAGRC

HKN

HUN

IND

INO

ISR

JOR

KAZKEN

KOR

LATLEB

LIT

MLY

MUS

MEX

MAR

NAM NGR

OMA PAKPAN

PER

PHLPOL

PRTROM

RUS

SGN

SLVSLN

ZAF

SLK

TAI

THA

TUN

TUR

UKRVEN

ZAMZIM

0.2

.4.6

.81

Sha

re o

f GE

M fu

nds

0 5 10 15Log value traded

Share of GEM funds vs. Log value traded

ARG

AUT

BAHBANBOT

BRA

BUL

CHL

CHN

COL

CIV

CRO

CYP

CZE

ECU

EGY

ESTGHAGRC

HKN

HUN

IND

INO

ISR

JOR

KAZKEN

KOR

LATLEB

LIT

MLY

MUS

MEX

MAR

NAM NGR

OMA PAKPAN

PER

PHLPOL

PRTROM

RUS

SGN

SLVSLN

ZAF

SLK

TAI

THA

TUN

TUR

UKRVEN

ZAMZIM

0.2

.4.6

.81

Sha

re o

f GE

M fu

nds

0 5 10 15Log value traded

>90% of funds and >$75-100 bn value traded

Outgrown asset class

<10% of funds and <$2 bn value traded

Why are SSA firms small?Cost Structures, Firm-Level Average by Country (Eifert, Gelb and

Ramachandran, 2005)

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

Bangladesh

Senegal

India

Morocco

Nicaragua

China

Ethiopia

Nigeria

Bolivia

Uganda

Zambia

Tanzania

Kenya

Eritrea

Mozambique

shar

e of

tota

l cos

ts

materials labor capital indirect

Why are SSA firms small?Gross and Net Value Added per Worker, $ Adjusted (Eifert, Gelb

and Ramachandran, 2005)

0

5000

10000

15000

20000

25000

$, a

djus

ted

gross VA per worker net VA per worker

Why are SSA firms small?Percentage of Annual Revenues Lost in Unofficial Payments

(World Bank Investment Climate Assessments, various)

02468

1012

SouthAfrica

Uganda Senegal Tanzania Kenya

Informal Partially Formal Formal

Conclusions

Target regional funds Leverage JSE Focus on supply constraints/barriers

to firm entry and growth

Privatization? Private equity? SME finance?

END

END

ARG

AUT

BAN

BOT

BRA

BUL

CHL

CHN

COL

CRO

CZE

ECU

EGY

EST

GHA

GRC

HKNHUN

IND

INOISR

KAZ

KEN

KOR

LEB

MLY

MUS

MEX

MAR

NGR

OMA

PAK

PAN

PER

PHL POL

PRT

ROM

RUS

SGN

SLV

SLN

ZAF

SLK

TAI

THATUR

UKR

VEN

ZIM

02

46

810

Log

GE

M in

vest

men

t

6 8 10 12 14Log market capitalization

Log GEM investment vs. Log market capitalization

Share of GEM investment vs. Log market capitalization

ARG AUTBAHBANBOT

BRA

BULCHL

CHN

COLCIV CROCYP CZEECUEGY

ESTGHA GRCHKNHUN

IND

INOISR

JORKAZKEN

KOR

LATLEB LIT

MLY

MUS

MEX

MARNAM NGROMA PAKPAN PERPHL POLPRTROM

RUS

SGNSLV SLN

ZAF

SLK

TAI

THA

TUN

TUR

UKRVENZAM ZIM

0.0

5.1

.15

.2S

hare

of G

EM

inve

stm

ent

6 8 10 12 14Log market capitalization

Market cap = $50 bn

No country with market cap under $50 bn receives more than 1% of total GEM investment

Log GEM investment vs. Log GDP

BOTGHA

KEN

MUSNGR

ZAF

ZIM

02

46

810

Log

GE

M in

vest

men

t

8 10 12 14Log GDP

Share of GEM funds vs. Log GDP

ARG

AUT

BAH BANBOT

BRA

BUL

CHL

CHN

COL

CIV

CRO

CYP

CZE

ECU

EGY

ESTGHAGRC

HKN

HUN

IND

INO

ISR

JOR

KAZKEN

KOR

LATLEBLITMWI

MLY

MUS

MEX

MAR

NAM NGR

OMA PAKPAN

PER

PHLPOL

PRTROM

RUS

SGN

SLVSLN

ZAF

SLK

TAI

TAJ

THA

TUN

TUR

UKRVEN

VIEZAM

ZIM

0.2

.4.6

.81

Sha

re o

f GE

M fu

nds

8 10 12 14Log GDP

Share of GEM funds vs. Log GDP

ARG

AUT

BAH BANBOT

BRA

BUL

CHL

CHN

COL

CIV

CRO

CYP

CZE

ECU

EGY

ESTGHAGRC

HKN

HUN

IND

INO

ISR

JOR

KAZKEN

KOR

LATLEBLITMWI

MLY

MUS

MEX

MAR

NAM NGR

OMA PAKPAN

PER

PHLPOL

PRTROM

RUS

SGN

SLVSLN

ZAF

SLK

TAI

TAJ

THA

TUN

TUR

UKRVEN

VIEZAM

ZIM

0.2

.4.6

.81

Sha

re o

f GE

M fu

nds

8 10 12 14Log GDP

>90% of funds and >$200 bn GDP

10%-90% of funds and $60-$200 bn GDP

Outgrown asset class

<10% of funds and <$60 bn GDP

Share of GEM investment vs. Log GDP

ARG AUTBAH BANBOT

BRA

BULCHL

CHN

COLCIV CROCYP CZEECUEGY

ESTGHA GRCHKNHUN

IND

INOISR

JOR KAZKEN

KOR

LAT LEBLITMWI

MLY

MUS

MEX

MARNAM NGROMA PAKPAN PERPHL POLPRTROM

RUS

SGNSLVSLN

ZAF

SLK

TAI

TAJ

THA

TUN

TUR

UKR VENVIEZAM ZIM

0.0

5.1

.15

.2S

hare

of G

EM

inve

stm

ent

8 10 12 14Log GDP

GDP = $100 bn

No country with GDP under $100 bn receives more than 1% of total GEM investment