Alain Nkontchou, Managing Partner of Enko Capital, talks to INTO AFRICA about the African Capital Markets.
CAPMARKETSINAFRICA: In your opinion, how would you describe the current African capital markets setting?
ALAIN NKONTCHOU: We believe the scene is still in its infancy as there is still much less credit (when measured by credit/GDP) in Africa when compared to other markets. Similarly, there are fewer asset managers that are solely dedicated to the continent. Hence we believe that as local economies grow, there is significant potential for growth of the African capital markets sector. Although it has grown strongly in recent years, particularly in the private equity space, there is still space for future growth. The market continues to get increasing attention as some countries realise the benefits of financing locally instead of going to the international capital markets. However the local markets, in general, are relatively shallow although there have been improvements over recent years.
CAPMARKETSINAFRICA: Domestic bond markets are essential to provide long-term local currency financing for key economic sectors – government, corporate and sub-national. They also offer investors much needed long-term investment opportunities. What are opportunities, key constraints and potential solutions to domestic bond markets development in Africa?
ALAIN NKONTCHOU: We believe the opportunity is significant given that the savings ratio is still lower than in other regions hence is expected to rise over time. Strong economic growth will lead to a natural demand for financial products and will need to be financed hence creating additional opportunities for the industry. The key things to monitor include political stability, macroeconomic imbalances, and savings ratios. Key constraints are regulatory uncertainties and macroeconomic imbalances which may make it more difficult to embark on longer term financing projects. Potential solutions include discussions with key stakeholders including Central Bankers, Ministers of Finance and policymakers etc.
CAPMARKETSINAFRICA: Please tell us about the Enko Capital Debt Fund (EADF) and what is the rationale behind it as well as where will the fund be investing (countries or sectors that will be targeted)?
ALAIN NKONTCHOU: The aim is to provide a vehicle for investors to gain exposure to the African debt market. The fund is predicated on the pillars of debt sustainability, value investing and active risk management. It is one of the few funds that exist globally which provides direct access to the African debt market, including both hard and local currency opportunities. It is one of the largest of its size at the moment and has the ability to invest in both the public and private debt markets. We expect the African debt market to continue to increase over time and believe that our expertise and knowledge of the market will lead to creating alpha for our investors. We tend to look for opportunities where we find attractive opportunities either due to policy mistakes, improving credit stories, macroeconomic imbalances, or market dislocations. We believe there is capacity to scale up the fund up to US$1 billion. Key markets to monitor include Egypt, Ghana, Ivory Coast, Kenya, Uganda, Nigeria, and Zambia.