Head of natural resources at Exotix Partners in the UK, Andrew Moorfield, said there is so much emotion in talks about Trump that he would rather focus on the “knowns” which are the markets. In Moorfield’s analysis there is some possible good news for African economies.
Some consequences for Africa
Moorfield referred to the low rate environment in the US. He said the last 12 months shows a post-Trump bump, but it is now falling again. US rates are expected to remain low in the medium term with some consequences for Africa. This situation, he says, “creates a favourable and stable climate for African investment”.
This he explains is because investors generally reach for yield expectations for low and stable US rates also encourage investors to move to emerging and frontier markets because the stability reduces risk premiums associated with a potential flight to quality.
“The US dollar has been weakening since January, consistent with Trump’s stated preferences threatening foreign investor returns through continuing depreciation,” he explained.
It is common cause that one of Trump’s key plans is to invest in US infrastructure and this, Moorfield projects, will buoy commodity demand generally which will benefit African economies as demand for oil, gas minerals and metals will grow.
According to him, Africa has lots of natural resources but is low on capital. “So if Trump executes his plan and invests in infrastructure, the effect should be that it would buoy commodities and will benefit African economies.”
The good news, says Moorfield, is that commodities have a wonderful multiplier effect. “And the multiplier effect is in the country of extraction, and that is Africa. So it can be a massive benefit.”
Low interest rates will spur infrastructure investment
Moorfield furthermore explained in terms of price recovery there can be a multiplier effect from a low base. “Commodities index at a low level and any price rises coming from a low base have an enhanced multiplier effect as they magnify the net revenue above the costs.”
He explains low interest rates will spur further investment in infrastructure including gas, mines and power on the continent. “So in this context opportunities will increasingly emerge to take advantage of an improving investment environment in selected African markets. Investors look for higher yields, and it is currently in the frontier markets.”
Business as usual
Another panellist and author of the book, Frontier: Exploring the top 10 emerging markets of tomorrow, Gavin Serkin told delegates four of the best 10 places in the world to invest is in Africa. This includes Nigeria, Ghana, Kenya and Egypt. Responding to the question is the Trump administration talking about Africa; Serkin said he would hope so. “It looks like business as usual but I think there is a lot going on. I think it is on the radar, just down on the list.
Leading investment expert Jerome Booth in turn said investing in emerging markets is contrary to popular belief, a smart way to reduce risk.