There’s
been nothing but trouble for much of Africa as the price of oil
plummeted 55 percent during the past two and a half years. But there’s a
brighter side to the sub-Saharan continent. Unlike Nigeria, where oil
accounts for more than 90 percent of exports, or South Africa, which
never recovered from the 2008 financial crisis amid weak global demand
for commodities, Kenya, the No. 3 economy measured by gross domestic
product, is turning the oil debacle into a bonanza.
Growing Faster Than Africa's Giants
Real GDP, year-over-year percentage change
Source: Bloomberg
Figures for 2016, 2017 and 2018 are projections
That’s because Kenya, like its East African neighbors
Ethiopia and Tanzania, is making lower energy prices a relative
strength. Kenya’s refined petroleum products almost tripled to 12
percent of exports from 4.5 percent in 2010, according to data compiled
by Bloomberg. Agriculture, including tea, flowers, coffee and legumes,
still represents the biggest share at more than 30 percent. Refined
petroleum and related exports, meanwhile, have become the
fastest-growing and second-largest share of what the country sells outside its borders.
There’s
no indication that the global slump in energy and commodities, which
afflicted the biggest economies, is letting up. Nigeria’s growth rate
slumped to 2.7 percent in 2015 from 11.3 percent in 2010 and South
Africa gained just 1.3 percent of GDP after only slightly better growth
during the five-year period. Economists surveyed by Bloomberg predict
that South Africa’s economy will gain only 0.4 percent, while Nigeria’s
GDP declines 0.5 percent in 2016 before growing 2.9 percent and 3.7
percent in the next two years, according to the Bloomberg data. Investing in Africa
In
contrast, Kenya’s $65 billion economy expanded 5.7 percent last year
and is forecast to grow an average of 6 percent between 2016 and 2018.
Investors, meanwhile, have made the country’s stock market the darling
of the continent. The 67 companies in the Nairobi Securities Exchange
Ltd. All Share Index produced a total return (income and appreciation)
of 5.4 percent during the past 12 months. By comparison, the 93
companies from 18 countries in the MSCI Frontier Market 100 Net Index
were little changed measured in U.S. dollars, according to data compiled
by Bloomberg.
During the past two years, investors were paying an
average 27 percent premium to buy stocks in Kenya compared to
comparable frontier market shares on a price-to-earnings basis. The
premium disappeared when their price-to-earnings ratios converged, which
created an opportunity for profit in Kenya equities -- most likely
because earnings for companies in Kenya increased faster than the
appreciation of the shares, according to Bloomberg data.
There’s a
similar advantage with Kenya shares compared to those in emerging
markets, which have more advanced economies than Kenya and other
frontier markets. Investors are buying Nairobi stocks with a 23 percent
discount relative to emerging market shares, on a price-to-earnings
basis. Two years ago, they were buying the same assets with a 38 percent
premium, another reflection of the potential profit of investing in
Kenya.
Three of the four best-performing stocks in Kenya this year
are directly correlated to the economy’s relatively robust expansion:
airlines, telecom and publishing. Kenya Airways Ltd. produced a 36.7
percent total return so far this year, the best in the Nairobi index,
amid rising passenger traffic. Safaricom Ltd., Kenya's biggest
telecommunications company, advanced 31.4 percent, and Longhorn
Publishers Ltd., a provider of education materials, gained 29.2 percent.
Investors
also have taken comfort in the stability of the Kenyan shilling, which
remains the least volatile of the eight most-traded African currencies
and among the continent’s best performers.
Living Longer and Better
Source: Bloomberg
Despite
the Kenya boom, life in the country still is perceived as treacherous.
About 70 percent of the country’s 47 million people are afraid the
country will experience violence during elections scheduled for August
2017, according to a survey by the non-profit Twaweza East Africa. While
such fear persists, continued growth is raising the standard of living
as measured by GDP per capita. Since 2000, Kenya’s percentage of the
population older than 65 years climbed to 2.9 percent from 2.6. At the
same time, people under the age of 15 declined to 40.9 percent from
42.4, according to Bloomberg data.
Bottom line: People in Kenya are living longer, better lives.
(With assistance from Shin Pei)
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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