Africa 'immune' to recession

Images and tales of immigrants being torched alive and mobs clashing with police in townships play to the worst fears of investors already spooked by political succession worries, power cuts, inflation and other worries over Africa's largest economy.

"It is another blow - although I wouldn't advise panicking at this point in time," said BNP Paribas strategist Elizabeth Gruie.

"We have to see how the government can deal with that in the very short term. It may affect sentiment towards the rest of the continent but it is still showing very strong growth."

The International Monetary Fund said last month it expected 6.5% growth in Africa in 2008, only a marginal fall from 6.6% in 2007 despite a wider global slowdown from the credit crunch and problems in the US.

Last week, ratings agency Standard & Poor's said high commodity prices and greater economic stability would sustain sub-Saharan growth and render it relatively immune to Western problems.

In contrast, South Africa has been suffering. The rand fell on Tuesday after the violence but has since remained broadly stable. But it is down more than 11% so far this year against the dollar which is itself weak.

Fourteen years after the end of apartheid, the country has seen a string of news that has left investors unnerved and wanting greater clarity on its future.

Zuma worries

Political worries about leftist Jacob Zuma, a record current account deficit, inflation and power cuts caused by overstretch at electricity generating Eskom has left many investors wary - although there has been no widespread dumping of foreign equity ownership and stocks are up so far this year.

Aberdeen Asset Management fund manager Andrew Brown, who helps manage $10bn of emerging equity with around $400m in South Africa, said his worry was less the actual violence than the underlying tensions it exposed.

"It is concerning and it highlights the underlying issues," he said. "These things are not untypical of emerging markets. Two years ago it was Brazil, last year it was Mexico. But there is already negative sentiment towards South Africa at the moment given the political uncertainty."

Overall, he said Aberdeen was deliberately underweight in South Africa - but it was targeting firms like retailer Massmart that were expanding into the rest of Africa.

Even as enthusiasm for South Africa fades, money is flowing to other parts of the continent with investors saying debt relief, greater political stability, better communications infrastructure with the boom in mobile phones and record commodity prices are drawing them in.

Oil-rich Nigeria is sometimes compared to Russia: sometimes politically and financially opaque, occasionally physically risky and with a reputation for corruption but still almost irresistible to some risk-keen investors.

And growing numbers of investors are drawn to Africa's less glamorous but perceived to be more stable countries like Ghana, Tanzania and Zambia. Post-election violence in Kenya this year deterred some, but the shilling has since recovered and investors are returning, although they are more wary.

Looking East

As well as reaping the benefits of high commodity prices, Africa has seen rising Chinese and other Asian foreign direct investment as well as a string of new Western private investment funds being set up to tap its growth.

Some fear enthusiasm could become a bubble but even if commodity prices retreat somewhat on the back of China feeling a pinch from Western slowdown, but others say Africa retains more than enough prospects to continue growth.

Certainly, African countries say they are looking less at the financial centres in London and perhaps even Johannesburg than ever before.

"I am not worried about the recession in the West because I am looking to the East," said Zambia finance minister Ng'andu Magande. "An economic slowdown in the East may come but it will be minimal... the West is not too much of an issue."

- Reuters