cdmccmcml<cm SPOTLIGHT ON AFRICA Clifford D. Mpare, CFA. Chairman and Chief Executive Officer CFA EUROPEAN INVESTMENT CONFERENCE LONDON, 2013.

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1 1 cdmccmcml<cm SPOTLIGHT ON AFRICA Clifford D. Mpare, CFA. Chairman and Chief Executive Officer CFA EUROPEAN INVESTMENT CONFERENCE LONDON, 2013.

2 2 Thesis Spotlight on Africa The paradigm shift that is taking place across the continent in areas of politics, business and macroeconomic policies presents the impetus for economic convergence amongst many African countries with the developed world. The opening up of African markets to the rest of the world in a stable political environment has led to unprecedented growth rates on the continent and with many more African countries buying into the idea of convergence, these rates are expected to be sustained in the long run, thereby presenting exciting investment opportunities. Advancement in market structure, governance and all round conditions to help facilitate investment Opportunities for European investors in Africa today Local market characteristics

3 3 Population Size in 2010 Compared to Other Countries With 15% of the World s population, Africa controls less than 3% of the Global GDP 156mn Nigeria = Russia (140) = Bangladesh (165) 85mn Ethiopia = Vietnam (88) = Germany (82) = Egypt (78) 70mn Dem Rep Congo = Iran (75) = Turkey (71) 50mn South Africa = Korea (49) = Spain (46) 40mn Kenya= Algeria (36) = Poland (38) = Canada (34) = Uganda (34) 24mn Ghana = Saudi Arabia (26) = Australia (23) 14mn Zimbabwe = Zambia (13) = Cambodia (14) = Greece (12) 10mn Rwanda = Hungary (10) = Czech Republic (11) Source: IMF, Renaissance Capital estimates

4 4 Economic Freedom on the Continent Improves Source: Economic Freedom Index (2013) Note: Variables include, Property rights, Freedom from corruption, Fiscal freedom, government spending, business freedom, labour freedom, monetary freedom, trade freedom, investment freedom financial freedom The 2013 index of economic freedom scores of 91 countries has improved. Of the 91 countries that recorded score gains, 71 are considered developing or emerging. Of those developing economies, 23 come from the Sub-Saharan Africa region 16 and 15 from Europe and Asia pacific region respectively. African countries with scores above the average 59.6 include Botswana (70.6), Rwanda (64.1) South Africa (61.8) Ghana (61.3) Namibia (60.3) Burkina Faso (59.9).

5 5 Sustainable Economic Growth Means Prosperity 25 years of 7% annual growth were achieved by these countries Period of high growth of 7% or more Per-capita income at the beginning and in 2005 (constant 2000 dollars) Botswana ,800 Brazil ,000 China ,400 Hong Kong ,100 29,900 Indonesia Japan ,500 13,200 Korea ,100 39,600 Malaysia ,400 Malta ,100 9,600 Oman ,000 Singapore ,200 25,400 Taiwan ,500 16,400 Thailand ,400 Source: The Next Convergence, Michael Spence, World Bank, World Bank Development Indicators The average real growth in Sub-Saharan Africa has increased from about 1 percent in 1992 to about 3 percent in 1998 and is forecasted to average over 5.5 percent in 2012 In 1992 only 18 countries recorded growth of 3 percent or more, by 1997 the number increased to 32. In 2006 only 10 countries had less than 3% growth Real per capita incomes of about 40 countries are on a steep rise; Ratio of investments to GDP up from 15% to 20% A rise in PPP GDP per capita from $1,000 to $5,000 can lead to a tenfold increase in the stock market

6 6 Better Macroeconomics Environment Domestic Credit to private sector as percentage of GDP Source: World Bank Database ; McKinsey Global Institute, 2010

7 7 Africa's Boastful Burgeoning Middle Class Source: McKinsey Global Institute, 2010 By 2020, more than half of African households will have discretionary spending power

8 8 World Share of GDP looking into the Future Source: Frontier Asset Management

9 9 Gems and Diamonds in the Rough Source: Frontier Market Asset Management

10 Population By far, the largest regional percentage increase in population by 2050 will be in Africa, whose population can be expected to at least double from 1.1 billion to about 2.3 billion.

10 10 Population By far, the largest regional percentage increase in population by 2050 will be in Africa, whose population can be expected to at least double from 1.1 billion to about 2.3 billion. With a current population of 4.3 billion, Asia will likely experience a much smaller proportional increase than Africa but will nonetheless still add about 1 billion people by Source: World Population Datasheet, 2012

11 11 Demographics favour the poor Source: Frontier Market Asset Management

12 12 Demographics favour the poor Source: Frontier Market Asset Management

13 13 Demographics favour the poor Source: Frontier Market Asset Management

14 14 Sub Saharan African is Urbanizing Faster Than Any Other Region Within the next two decades, the continent's urban population will double as new economic centers emerge and attract rising tide of Africans moving to these areas for jobs and better life Growing at 3.9 percent, the urban population in Africa will continue to be the highest in the world The rapid urbanization will require huge investments in infrastructure Source: WDI

15 15 Fastest Growing Cities in Africa FASTEST GROWING SUB-SAHARAN AFRICAN CITIES Annual city growth rate Share of city in national population (%) Share of city in national pop.in 2025 city density (pop./km2) City,Country 1 Abuja,Nigeria ,100 2 Ouagadougou,Burkina Faso ,600 3 Luanda, Angola ,990 4 Yaoundé, Cameroon ,100 5 Kumasi,Ghana ,200 6 Dar es Salaam, Tanzania ,600 7 Lilongwe, Malawi ,479 8 Douala, Cameroon ,000 9 Mbuji-Mayi, Dem. Rep. Congo , Lusaka, Zambia , Brazzaville, congo , Kinshasa, Dem. Rep. Congo , Nairobi, Kenya , Lubumbashi, Dem. Rep. Congo , Lagos, Nigeria , Kampala, Uganda , Accra, Ghana , Dakar, Senegal , Conakry, Guinea , Abidjan, Cote d'ivoire , Cotonou, Benin , Khartoum, Sudan , Cape Town, South Africa , Ibadan, Nigeria , Johannesburg, South Africa , Durban, South Africa , Kano, Nigeria , Addis Ababa, Ethiopia , Maputo, Mozambique , Harare, Zimbabwe ,800

16 16 Africa Countries have made Significant Progress in Increasing Access to Schooling Source: McKinsey Global Institute, 2010 An educated workforce will only drive the success story of Africa further

17 Source: Frontier Market Asset Management Literacy Rates

18 OPPORTUNITIES FOR EUROPEAN INVESTORS IN AFRICA 18

19 19 Capital Markets and Attractive Economic Sectors Stock Market Debt Market Private Equity Market Infrastructure Agriculture

20 Sub Saharan Bourses Overview Source: PricewaterhouseCoopers, African Stock Exchanges Association. What Bull Market; What Bear Market It is a Lion Market.

20 20 Sub Saharan Bourses Overview Source: PricewaterhouseCoopers, African Stock Exchanges Association. What Bull Market; What Bear Market It is a Lion Market. There are about 29 stock markets on the continent today. Market Capitalization has risen from $113 billion in 1992 to $1.05 trillion in Over 1 billion people and 15% of world population. Very low; 3% of world s GDP. 20% of the world s natural resources. Small and illiquid markets but improving. Private equity leapfrog.

21 21 Better Stock Market Performance Source: BLOOMBERG

22 22 Market and Country Outlook GDP Growth* Market Country Market Cap Index Name Average Name (US$) Turnover PE Total Ret 1YR Est P/E P/B Div Yld P/S Ev/EBITDA Botswana BGSMDC B 531,740, NA Egypt EGX B 14,170,080, Ghana GGSECI B 166,228, Kenya NSEASI B 5,913,919, Mauritius SEMDEX B 1,379,884, NA Morocco MOSENEW B 86,019, Nigeria NGSEINDX B 81,110,129, South Africa JALSH B 39,834,233, Tunisia TUNINDEX B 119,528, N/A Zambia LUSEIDX B 207,999, N/A 0.18 N/A Source: Bloomberg; *IMF World Economic Outlook Database April 2013; Frontline Capital Advisors

23 23 Gems and Diamonds in the Rough... Source: Frontier Market Asset Management

24 24 Advent of Eurobonds in Africa African credits are in demand due to lacklustre growth experienced in the developed nations. Macro economic stability (lower debt to GDP ratios) and relatively better political environment has increased investor confidence in the Africa region. Hence, the oversubscription of bonds seen in countries such as Ghana (4x), Namibia (5.5x) and Zambia (15x). According to Reuters, West African issuers have raised more than 4.5 billion USD since West Africa s vast resource of oil, gold and cocoa, will boost hard currency reserves and keep investors interested in the region. In Sub-Saharan Africa (excluding South Africa, its biggest economy), only nine countries have issued euro bonds, with Ghana leading the way in Africa s huge infrastructure funding needs, estimated to be around $90 billion annually, will be another key driver of debt issuance, according to a report by the credit rating agency, Moody s. Moody s observes that credit ratings has improved across the Sub Region due to improved political stability, growing middle class and sustained economic growth of above 5%.

25 25 Searching for Yield? Africa is the Place Nigeria Zambia Kenya Ghana GDP Growth (2012) 6.6% 7.3% 4.3% 7.9% Public Debt as Percent of GDP Local Currency Bond Yields in % 33.1% 51.4% 49.3% 5 year Bond Jan: 15.4% Oct: 13.4% 5 year Bond Jan: 14.2% Oct: 11.5% 4 year Bond Jan: 18.9% Oct: 10.2% 5 year Bond Jun: 26.0% Aug: 23.0% Credit rating Standard & Poor's BB- B+ B+ B Country Size Date Coupon S&P Rating Yield** Mongolia $1.5 billion 28/11/ % BB Bolivia $500 million 22/10/ % BB Zambia $750 million 13/09/ % B Nigeria $500 million 21/01/ % BB Ghana $1 billion 25/07/ % B 7.9 Spain EUR 3.4 billion 14/04/ % *BBB Source: Bloomberg,Wall Street Journal and Frontline Capital

26 African Bond Issuance: A Chronology (in $ Million) Lehmann Collapse Lehmann Collapse SA $ 1bn Gabon $1bn Congo $454mn Ghana $750mn Seychelles $30mn Morocco 500mn Tunisia 185mn Egypt EGP1mn SA $2bn

26 26 African Bond Issuance: A Chronology (in $ Million) Lehmann Collapse Lehmann Collapse SA $ 1bn Gabon $1bn Congo $454mn Ghana $750mn Seychelles $30mn Morocco 500mn Tunisia 185mn Egypt EGP1mn SA $2bn Senegal $200mn SA $2bn Cote $2.3bn d Ivoire Egypt $1.5bn Morocco 1bn SA $750mn Nigeria $500mn Namibia $500mn Senegal $500mn SA $1.5bn Zambia $750mn Tunisia $500mn Cote $187mm D Ivoire Morocco $2.25bn SA $2bn Ghana 1bn Nigeria $1bn Rwanda $400mn Egypt $3.7bn Angola? Senegal? Source: Business and Financial Times

27 The crane index and new retail trends are in play in Accra, Ghana 27

28 28 Africa s Infrastructure - a $96bn Annual Opportunity Estimates of SSA needs - $96bn a year? 7,000 MW of new power generation capacity pa 22,000 MW of cross-border transmission lines pa Interconnection of capitals, ports, border crossings and secondary cities via a well established transportation network General Road network Road access to all high-value agricultural land Waste Removal Double land under irrigation annually Household electrification rates raised by 10% each year Mobile telephony and public access broadband for 100% of the population Source: Renaissance Capital

29 29 Africa s High Cost Infrastructure Source: Meeting Africa's infrastructure needs

30 30 Network of Power and Roads are Inadequate Power Roads Source: Renaissance Capital estimates

31 31 Africa s Infrastructural Deficit Presents Exciting Investment Opportunities Source: McKinsey Global Institute, 2010 Africa needs to invest about $118 billion a year in infrastructure to keep pace with economic growth

Infrastructure improvements have added to an estimated 1% to GDP growth rates over 1990 2005.

32 32 Infrastructure Changes in growth per capita caused by changes in growth fundamentals In order to ride this tide of economic growth, there has been some improvements to infrastructure growth over the past decade. Infrastructure improvements have added to an estimated 1% to GDP growth rates over Within infrastructure, telecoms has been a major driver to GDP per capita across Africa. Power has made the least contribution and has even taken some growth off. Source: McKinsey Global Institute, 2010, Rencap Estimates

33 33 African Mobile Subscriber Growth and Penetration ( ) Year Subscribers (million) Annual Growth Penetration As Percentage of Total Telephone Subscribers % 1% 17% % 1% 29% % 2% 36% % 3% 53% % 5% 62% % 6% 65% % 9% 76% % 15% 82% % 21% 88% % 30% 91% % 38% 92% 2009 (e) % 46% 93% 2010 (e) % 54% 93% (Source: BuddeComm based on ITU, Global Mobile and industry data) Mobile phone penetration is over 50%; it has grown from 1% in Some markets are still growing at 100% per annum. For 10 additional phones per 100, GDP grows by 0.6 to 1.2%. Internet capacity has risen from 34% gigabit to 34,000 gigabit per second; Internet cost has dropped 95% since 07.

34 34 Mobile Penetration as % of Population Source: MTN, NCC, Offcom, Arcep, Renaissance Capital estimates

35 Must make a call by all means! 35

36 36 Africa Offers Exciting Rates of Return Source: World Investment Report 2013, FCA Research In developing and transition economies, FDI rates are higher than those in developed economies

37 37 Top 20 Economies with Highest Inward FDI Rates of Return (%) 2011 Source: World Investment Report 2013

38 38 Africa represents about 60 percent of the potentially available cropland in the world Source: McKinsey Global Institute,2010 With world food production needing to rise, Africa, with 60 percent of arable land will be an important part of the solution

39 EUROPEAN INVESTMENT CONFERENCE Beyond Austerity: Opportunities for European Investors in the Global Market November 2013 London, United Kingdom

40 EUROPEAN INVESTMENT CONFERENCE Beyond Austerity: Opportunities for European Investors in the Global Market November 2013 London, United Kingdom

FUTURE OPPORTUNITIES IN

FUTURE OPPORTUNITIES IN BUSINESS AND THE DIGITAL ECONOMY Clifford D. Mpare, CFA Chairman and CEO Frontline Capital Advisors, Ltd. 2022 Vision: Whose GDP will grow most in the world by 2022? RANK EXPECTED