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Finance

Asia still smitten by Africa, Barclays says

LONDON -- While it has been a bruising year for many African economies, investors retain a high level of interest in the continent, said Chris van Niekerk, managing director of corporate banking at Barclays Africa. From 2013 to 2014, Africa's share of global foreign direct investment grew rapidly, from 8% to 17%. "Despite the fact there are some headwinds in Africa," he said, "it's noteworthy that amongst our multinational clients interest in Africa is genuinely undiminished."

     Asian countries have a growing presence on the continent. China is involved in a range of headline-grabbing projects, such as Kenya's extension of the Mombasa-Nairobi railway, announced in September. However, Japan remains the continent's largest project finance investor, van Niekerk told Japanese clients at an event at the bank's London headquarters.

     Last year, the Japanese government loaned Mozambique around $280 million to upgrade its northern port of Nacala. The deepest natural port on Africa's east coast, it is also used by landlocked neighbors Malawi and Zambia.

     Japan's trading houses are investing, too. Itochu and Sumitomo have both plunged more than $200 million into power generation projects. Altogether, capital from Japan made up $3.5 billion of the $4.2 billion that Asia invested in Africa last year.

     Many African economies have struggled since commodity prices began tumbling. In August, among signs of volatility in China, prices for copper, Zambia's biggest export, fell below $5,000 a ton for the first time in six years. Prices for gold, Ghana's main export, have been falling for several years, down from $1,800 an ounce in 2011 to around $1,100 today.

     Currencies have taken a beating. The Zambian kwacha is Africa's worst performer, down almost 50% against the dollar this year. The kwanza, the currency of oil producer Angola, has fallen around 25%.

     For Kenya, a net oil importer that does not depend on commodity exports, and similar countries the fall in oil prices is a boost. However, "much of the economic growth in Africa, or an increasing potion of it, is driven by intra-Africa trade," van Niekerk said. Weakness in Kenya's export markets such as Nigeria, where oil contributes 70% of government revenues, will have a knock-on effect.

     Along with many African countries, Nigeria's currency market suffers from low liquidity, which can make it difficult for international investors to manage currency risk. The central bank has introduced foreign exchange controls to try to prevent the currency from falling further.

     While Barclays has revised down its forecasts, it still expects sub-Saharan Africa to be the world's second fastest growing region after developing Asia. Foreign direct investment has risen from $54 billion in 2008 to $128 billion last year. Longer term, there are many reasons to be optimistic, van Niekerk said. Africa, he noted, has a "tremendously young population," with consumer spending expected to grow to $1.4 trillion by 2020.

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