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Morgan Stanley's Michael Schwabe believes that the fast developing African equity markets offer tremendous value for institutional investors. Anuj Gangahar reports
Michael Schwabe co-manages the Morgan Stanley Dean Witter Africa Investment Fund from New York with Jaideep Khanna. The fund was setup in 1994 as a closed-end investment company investing primarily in African equities. The fund currently has a total of $182 million net assets under management.
This interview took place on the 12th of January.
What is the case for investing in Africa?
Most African countries other than South Africa have small, undiscovered markets which offer fantastic value for the investor. They are difficult to learn about and difficult to trade for liquidity reasons. But they do offer quite exciting opportunities as there is great economic potential. There are a number of economic success stories in Africa. The growth rates of many countries have been greater than 5% consistently over the last decade. They may not be that important to those who view the world with G7 eyes but the fact that they are so little known is a significant part of the opportunity.
What about South Africa?
One has to make separate statements about South Africa and the rest of the continent. South Africa is stronger than it has been since the new government took over in 1994. At the moment, you have an economy that is finally picking up, having experienced very low rates of growth over the past couple of years (about 1% in 1999jumping to 3.5 -4% in 2000). This is driven in part by the very dramatic reduction of interest rates that occurred last year when rates fell by 75%. Rates are likely to fall between 1% and 1.5% this year which will benefit the economy. In conjunction with that, perhaps more by good luck than anything else, the commodity cycle strengthened pretty dramatically towards the second half oflast year. Commodities are an important part of the external trade of South Africa.
The new government is tackling some of the more difficult problems faced by South Africa. The main one is the labour issue. You have a previously economically disenfranchised proportion of the population which is being integrated but do not have the appropriate skills. The government...