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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
GHA
KEN
MUS
NAM
NGR
ZAF
ZAM
ZIM
68
10
12
14
Log
ma
rket
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
10
15
Log
va
lue
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
nu
mb
er o
f fu
nd
s
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
$ m
n
Source: EmergingPortfolio.com Fund Research
2005: $98 bn
South Africa GEM investment, 1996-2004
(3 year moving averages)
1,573 1,568
2,359
2,7092,889
2,402
3,221
5,166
7,399
4.6%
5.1%
6.3%
7.0%6.7% 6.6%
7.1%
8.9%
9.5%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1996 1997 1998 1999 2000 2001 2002 2003 2004
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Left scale - GEM investment(US$ 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 2004
0.00%
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
har
e o
f GE
M in
vest
me
nt
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 CROCYPCZE
ECUEGY
ESTGHA GRCHKNHUN
IND
INOISR
JORKAZKEN
KOR
LATLEB LIT
MLY
MUS
MEX
MARNAM NGROMA PAKPAN PERPHL POL
PRTROM
RUS
SGNSLVSLN
ZAF
SLK
TAI
THA
TUN
TUR
UKR VENZAM ZIM
0.0
5.1
.15
.2S
har
e o
f GE
M in
vest
me
nt
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
81
0L
og
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
81
0L
og G
EM
inve
stm
ent
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
KAZ
KEN
KOR
LATLEB
LIT
MLY
MUS
MEX
MAR
NAM NGR
OMA PAKPAN
PER
PHLPOL
PRTROM
RUS
SGN
SLV SLN
ZAF
SLK
TAI
THA
TUN
TUR
UKR
VEN
ZAMZIM
0.2
.4.6
.81
Sh
are
of G
EM
fun
ds
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
KAZ
KEN
KOR
LATLEB
LIT
MLY
MUS
MEX
MAR
NAM NGR
OMA PAKPAN
PER
PHLPOL
PRTROM
RUS
SGN
SLV SLN
ZAF
SLK
TAI
THA
TUN
TUR
UKR
VEN
ZAMZIM
0.2
.4.6
.81
Sh
are
of G
EM
fun
ds
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
KAZ
KEN
KOR
LATLEB
LIT
MLY
MUS
MEX
MAR
NAM NGR
OMA PAKPAN
PER
PHLPOL
PRTROM
RUS
SGN
SLVSLN
ZAF
SLK
TAI
THA
TUN
TUR
UKR
VEN
ZAMZIM
0.2
.4.6
.81
Sh
are
of G
EM
fun
ds
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
KAZ
KEN
KOR
LATLEB
LIT
MLY
MUS
MEX
MAR
NAM NGR
OMA PAKPAN
PER
PHLPOL
PRTROM
RUS
SGN
SLVSLN
ZAF
SLK
TAI
THA
TUN
TUR
UKR
VEN
ZAMZIM
0.2
.4.6
.81
Sh
are
of G
EM
fun
ds
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
share
of
tota
l co
sts
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
81
0L
og G
EM
inve
stm
ent
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 CROCYPCZE
ECUEGY
ESTGHA GRCHKNHUN
IND
INOISR
JORKAZKEN
KOR
LATLEB LIT
MLY
MUS
MEX
MARNAM NGROMA PAKPAN PERPHL POL
PRTROM
RUS
SGNSLV SLN
ZAF
SLK
TAI
THA
TUN
TUR
UKRVENZAM ZIM
0.0
5.1
.15
.2S
har
e o
f GE
M in
vest
me
nt
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
81
0L
og G
EM
inve
stm
ent
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
KAZ
KEN
KOR
LATLEBLITMWI
MLY
MUS
MEX
MAR
NAM NGR
OMA PAKPAN
PER
PHLPOL
PRTROM
RUS
SGN
SLVSLN
ZAF
SLK
TAI
TAJ
THA
TUN
TUR
UKR
VENVIE
ZAMZIM
0.2
.4.6
.81
Sh
are
of G
EM
fun
ds
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
KAZ
KEN
KOR
LATLEBLITMWI
MLY
MUS
MEX
MAR
NAM NGR
OMA PAKPAN
PER
PHLPOL
PRTROM
RUS
SGN
SLVSLN
ZAF
SLK
TAI
TAJ
THA
TUN
TUR
UKR
VENVIE
ZAMZIM
0.2
.4.6
.81
Sh
are
of G
EM
fun
ds
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
BUL
CHL
CHN
COLCIV CROCYPCZE
ECUEGY
ESTGHA GRCHKNHUN
IND
INOISR
JOR KAZKEN
KOR
LAT LEBLITMWI
MLY
MUS
MEX
MARNAM NGROMA PAKPAN PERPHL POL
PRTROM
RUS
SGNSLVSLN
ZAF
SLK
TAI
TAJ
THA
TUN
TUR
UKR VENVIEZAM ZIM
0.0
5.1
.15
.2S
har
e o
f GE
M in
vest
me
nt
8 10 12 14Log GDP
GDP = $100 bn
No country with GDP under $100 bn receives more than 1% of total GEM investment