Mark Mobius made his name as a perpetually optimistic investor in developing countries. He spent 30 years at Templeton Emerging Markets before starting Mobius Capital Partners in 2018. His firm’s exposure to Africa remains limited to investments in South Africa and Kenya, he tells The Africa Report during a visit to Paris.
Mobius, who is based in Dubai, points to the history of The Ibrahim Prize for Achievement in African Leadership to support his case. The prize is awarded to a former African executive head of state or government on criteria of good governance, democratic election and respect of term limits. The award of $5m over 10 years, followed by $200,000 a year for life, is the world’s largest cash prize.
The prize was awarded to Niger’s Mahamadou Issoufou in 2020, with former winners including Nelson Mandela and Mozambique’s Joaquim Alberto Chissano. But since its creation in 2007, the award has been made only seven times, with most years blank.
- “This reflects on the African challenge,” Mobius says. “There’s no shortage of money,” for investment. “There’s a shortage of confidence” in African governance.
Nigeria remains clearly off the map as far as Mobius is concerned. He has previously invested in the country’s oil sector and is in no rush to repeat the experiment. He remembers being in a convoy of vehicles in Lagos while visiting oil executives. The cars kept having some of their oil siphoned off to be allowed to keep moving.
He sees the incident as a symptom of a general malaise. Corruption there is “deep and embedded,” Mobius says. “There is no company that is free of the impact of government corruption.” So far there is no evidence of political will to reduce corruption, he says. “I haven’t seen it yet.”
Even on strictly financial criteria, Nigerian companies don’t make the cut.
- Return on capital levels are too low, and corporate debt to equity ratios are too high, Mobius says.
- Currency restrictions are a further obstacle as it’s hard to get permission to repatriate earnings.
- “We have to be sure when we put money in that we can get it out,” Mobius says, especially as he is running an open-ended fund. “That is a major risk” in Nigeria.
- The country has “many smart people but they need a framework to operate in. It’s very difficult to justify going in.”
Mobius is a firm supporter of President Cyril Ramaphosa and his reform programme. Ramaphosa “has done an awful lot considering the barriers he faces,” Mobius says. “The main fact that he’s there and elected” and seeking to pursue a reform agenda is “a great step forward.” Ramaphosa has “gone a long way given the constraints he’s facing.”
The president, Mobius says, remains constrained by the African National Congress (ANC), which he calls an “embedded, corrupt party structure” which provides “soft, cushy jobs for party members in state-owned enterprises.
- Given the country’s high standards of corporate governance, South African mining companies which operate elsewhere in the continent may be a way to gain African exposure while avoiding many corruption issues, Mobius says.
- Still, his fund avoids mining stocks for environmental reasons.
Mobius’s latest book, The Inflation Myth and the Wonderful World of Deflation, was published in 2020. The main argument then was that technological progress has made the concept of inflation obsolete. Prices may officially go up, but that just reflects outdated baskets of goods that people no longer buy. In the real world, Mobius argued, technology means that we are able to transmit and store information at speeds and quantities without parallel in history.
The Russia-Ukraine war and the resulting global inflationary shock mean that deflation has disappeared from view. Mobius stands by his central thesis. The consumer price indexes used in countries globally to measure inflation are “deeply flawed,” he says. Prices for modern technology such as mobile phones are still falling.
Global inflation, he argues, is being driven by an increase in money supply rather than by the war, with a US money supply increase of 30% in 2021 being the chief culprit. “The central banks have made a big mess” by printing more money.
- The retreat to the US dollar caused by the war has caused many African currencies to weaken. That has positive as well as negative implications for Africa, as exports are becoming more competitive, Mobius says.
- Some African countries are probably also following the example of India and buying Russian oil at cheaper than market prices, he adds.
- African countries such as Egypt are capable of producing more of their own food, so higher costs for imports may have a long-term silver lining, he says. “Temporary hardship could turn out to be positive.”
- The continent’s young population could be the basis of future growth “if they get their house in order in terms of governance.”
- But for now, global companies based in stable jurisdictions with proven corporate governance systems and some exposure to Africa may be a better way to play the continent’s potential, he says.
The Bottom Line
If Nigeria can’t convince a professional optimist like Mark Mobius, its pool of potential foreign investors will remain limited.
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