Todd Moss, Vijaya Ramachandran, and Scott Standley

1
Todd Moss, Vijaya Ramachandran, and Scott
Standley
Why Doesnt Africa get More Portfolio
Investment? Frontier Stock Markets, Firm Size,
and Asset Allocations of Global Emerging Market
Funds
2
Why relevant?

• Finance development debate
• Push vs Pull determinants
• Inform efforts to promote cap flows
• Market failure?
• Market works?

3
Frontier equity markets

• 15 mkts
• SA dominates
• Others small, low liquidity
• Few large blocks available
• But not unusual

4
Log market capitalization vs. Log GDP
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Log value traded vs. Log market capitalization
6
Regional Funds
7
GEM fund investment, 1995-2005
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South Africa GEM investment, 1996-2004 (3 year
moving averages)
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GEM investment in Frontier SSA (1996-2004, 3yr
moving averages)
10
Share of GEM investment vs. Log market
capitalization
No country with market cap under 50 bn receives
more than 1 of total GEM investment
Market cap 50 bn
11
Share of GEM investment vs. Log value traded
No country with value traded under 10 bn
receives more than 1 of total GEM investment
Value traded 10 bn
12
Log GEM investment vs. Log market capitalization
13
Log GEM investment vs. Log value traded
14
Share of GEM funds vs. Log market capitalization
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Share of GEM funds vs. Log market capitalization
gt90 of funds and gt150 bn market cap
lt10 of funds and lt20 bn market cap
Outgrown asset class
16
Share of GEM funds vs. Log value traded
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Share of GEM funds vs. Log value traded
gt90 of funds and gt75-100 bn value traded
Outgrown asset class
lt10 of funds and lt2 bn value traded
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Why are SSA firms small?

• Cost Structures, Firm-Level Average by Country
  (Eifert, Gelb and Ramachandran, 2005)

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Why are SSA firms small?

• Gross and Net Value Added per Worker, Adjusted
  (Eifert, Gelb and Ramachandran, 2005)

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Why are SSA firms small?

• Percentage of Annual Revenues Lost in Unofficial
  Payments (World Bank Investment Climate
  Assessments, various)

21
Conclusions

• Target regional funds
• Leverage JSE
• Focus on supply constraints/barriers to firm
  entry and growth
• Privatization?
• Private equity?
• SME finance?

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END

• END

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Log GEM investment vs. Log market capitalization
24
Share of GEM investment vs. Log market
capitalization
No country with market cap under 50 bn receives
more than 1 of total GEM investment
Market cap 50 bn
25
Log GEM investment vs. Log GDP
26
Share of GEM funds vs. Log GDP
27
Share of GEM funds vs. Log GDP
gt90 of funds and gt200 bn GDP
10-90 of funds and 60-200 bn GDP
Outgrown asset class
lt10 of funds and lt60 bn GDP
28
Share of GEM investment vs. Log GDP
No country with GDP under 100 bn receives more
than 1 of total GEM investment
GDP 100 bn