Can Africa benefit from a Greek exit?
Though the idea of ‘eurogeddon’ is shaking world markets and leaving many wondering what will come next, are there any ways in which Africa could benefit from a country leaving the eurozone?
Yes The main reason why Africa was not affected in the previous financial crash was that our markets were still closed and not deep. That has not changed, and therefore you have very little speculative investment. You have a bit of foreign direct investment (FDI), but FDI is permanent or semi-permanent. That is never affected. What is affected are the fund managers, the speculative investments, who have come in for three years or some even for 90 days. You don’t have much of that. So, even in 2008 it didn’t affect most African countries. But it did affect Nigeria because in Nigeria we had a lot of foreign investment in our equities market, and they all pulled out. I know it affected South Africa too. If we are not careful in Nigeria now, there is a huge investment in treasury bills pulled in because of interest rates of 12-13% that could cause a problem should the euro get into difficulty because that is hot money. What will happen to our exchange rate if it all goes out? So we have to be careful, but there may be ways to benefit.
In 2008, when the crunch came, we noticed that African bonds were dumped. So, for example, GTBank was trading at $0.65. The government of Ghana was trading at $0.70. We bought some and made good money because no sooner had we bought it than it had gone back up to $1. Quite a few people made plenty of money from that. When this Greece crisis started, that was the first thing I told my guys – monitor the prices of your GTBank, your First Bank, even the Nigerian government, Ghanaian government, and let’s see whether the same thing will happen. But I think that the market is wiser this time. ●
No There is no such thing as benefiting from a negative situation. Growth is not zero sum. It’s silly to think that one big region underperforming in any way is possibly going to be beneficial, especially your biggest trading partner. In terms of potential euro scenarios, the best possible scenario would be the managed exit of a country like Greece which did not bring down the rest of the euro area with it. The danger in everyone’s mind is that if Greece does go, is it going to be possible to manage it? Is it do-able operationally? And how do you then stop depositors in Spain, Italy and potentially France or Belgium from rushing to withdraw their deposits from banks? This could precipitate something much bigger than Lehmans if it’s not controlled properly. So, given that, it’s very difficult to see what possible upside there could be for Africa. ●