Credit fund manager says Africa looks safer as global wars rise

Wars in the Middle East and Ukraine are reshaping investor risk perceptions, highlighting Africa as more resilient than its reputation suggests, according to London-based credit fund manager TLG Capital.

Focusing on defensive sectors across the continent offer steady returns of about 12%, TLG chief executive officer Zain Latif said in an interview on the Next Africa podcast. The firm, with backers including Bpifrance SACA and the International Finance Corp, has been investing in Africa for more than 16 years.

African markets have long carried what the Africa Finance Corp calls a “prejudice premium,” with sovereigns often paying more than peers outside the continent with similar credit ratings. An International Monetary Fund study last year found sub-Saharan African countries pay about half a percentage point more to borrow, a gap that widens in times of stress.

That perception should change, Latif said.

“What the Middle East crisis showed us, and I think showed the world, is that Africa is not as risky as other places,” he said. Wars outside the continent have “pierced a lot of perceptions. That’s been very helpful to demonstrate to folks that look, diversification is there for a reason,” Latif said.

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An equal-weighted index of African local-currency government bonds has returned 28% over the past year, compared with 15% for a similar gauge of emerging-market debt. An index of African sovereign bonds outperformed its emerging market peers by 0.9% over the past month.

TLG has invested in countries including Guinea, Djibouti, Tanzania and Zambia. Nigeria is a market that investors can’t ignore because of its “sheer size,” Latif said, while also describing Uganda as an “extraordinary place.”

Still, the continent faces significant challenges.

The US-Israeli war on Iran has highlighted the vulnerability of many import-dependent African countries to fuel and fertiliser supply shocks spawned by the conflict. Currencies have weakened across the continent, raising the cost of servicing external borrowings in countries in countries already burdened by elevated debt and tighter global financing conditions.

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And the continent also has some of the world’s most intractable conflicts.

A three-year civil war in Sudan is estimated to have killed more than 150 000 people and displaced millions. In West Africa, coastal states in the Gulf of Guinea face mounting pressure from Islamist militants linked to al-Qaeda and Islamic State who’ve intensified attacks in the Sahel region and gained ground in previously stable countries such as Togo and Benin.

Those risks haven’t impeded the gain in equity benchmarks in West Africa. Ghana’s stock index has risen 42% in dollar terms this year, making it the world’s best performer, while Nigeria’s benchmark has gained 36%.

“To us, when we think about Africa, we see it as a place where magic will happen,” Latif said.

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