MARKET WATCH REPORTS – SIERRA LEONE AND IVORY COAST WILL OVERTAKE SOUTH AFRICA IN THE NEXT FIVE TO TEN YEARS IN TERMS OF GROWTH

The leading financial markets report website, Marketwatch.com is reporting that two West African states, namely Sierra Leone and Ivory Coast, are set to overtake South Africa in the next five to ten years in terms of growth. The article also highlights the huge role African Minerals, London Mining and Lukoil  are playing in boosting the economies of these countries – Read the article in full below:

The frontier markets of Western Africa have the most promise for uncorrelated long-term potential of all sub-Saharan Africa. Having covered the larger countries of this region — Nigeria and Ghana — I want to now take a deeper dive into those countries less familiar to many investors, Sierra Leone and The Ivory Coast (Côte d’Ivoire).

As hard as it may be to imagine, I believe these countries, collectively and individually, will overtake South Africa in the next five to 10 years in terms of growth.

Sierra Leone

Sierra Leone, a country of six million, experienced GDP growth of roughly 15% in 2012 and again in 2013. Like many African countries, this growth was driven by the mining sector. Iron-ore production contributed to the country’s GDP growth from 6% in 2011 to current levels, which are expected to continue as iron-ore projects become fully operational.

African Minerals AMLZF +2.09%  owns 80% of the Tonkolili project, having sold 16.5% share of it to China’s Tianjin Minerals and Equipment Group (private). Previously, AMI received a large investment from China’sShandong Iron & Steel Group . With these investments, the company will expand Tonkolili from 20 million metric tons per year to 35 million of open-pit production. For comparison, the Carajas Mine in Brazil, the world’s largest iron-ore mine, produces over 300 million metric tons of ore.

China is a huge investor in Sierra Leone. According to the country’s Ministry of Mines and Mineral Resources, China’s Kingho Energy Group Co., Ltd (private) will spend more than $6 billion in the development of mineral resources there. These projects include the construction of a railway and a deep-water port.

China isn’t the only investor in Sierra Leone. London Mining UK:LOND -3.52% owns 100% of Sierra Leone’s Marampa mine, a working iron-ore facility (mine, power plant and processing plant) with an estimated 40-year lifespan, according to the company. Currently it is producing 5.4 million metric tons per year.

Iron ore is not the only natural resource Sierra Leone boasts. Its largest diamond mine, Koidu, supplies U.S.-based Tiffany & Company TIF +0.26%  with many of its diamonds. Koidu is privately owned by Hong Kong-based, Israeli-owned Octea Mining. London-based Stellar Diamonds PLC UK:STEL 0.00%  holds the Kono and Tongo diamond properties in Sierra Leone as well as various licenses in Guinea.

Despite the huge investments in mining, Sierra Leone has a significant agricultural economy, including cocoa from its arable farmland and fishing from its 250 miles of coastline. There is little processing, however, of any produce which is attributed to destruction during the country’s 1991-2002 year civil war and the ensuing years of civil unrest.

With the help of Britain, the former colonial power, and a large UN peacekeeping mission, the country has been recovering. Democracy consolidated at the 2012 elections, the first held without UN supervision.

As with any post-conflict country, the short-term can be rocky. However, long-term, the prospects are bright. According to the Doing Business Report 2014, a joint report by the World Bank and the International Finance Committee, Sierra Leone was among the world’s 20 best countries to do business.

According to the report, as a whole Sub-Saharan Africa continues to record large numbers of reforms aimed at easing regulatory burdens on entrepreneurs.

Ivory Coast

The Ivory Coast (Cote d’Ivoire) is the largest economy in the West African Economic and Monetary Union (WAEMU), consisting of 40% of the Union’s GDP [eight WA countries, Benin, Burkina Faso, Cote d’Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo].

Cote d’Ivoire GDP growth for 2012 was 9.8%; the forecast for 2013 is 10.22%. With a population of nearly 20 million, the country is one of the larger in West Africa. It’s also one of the continent’s best-developed countries, possessing outstanding infrastructure in comparison to other developed countries, including 82,000 km in roadways. Abidjan, the country’s capital, is home to the second largest port on the continent.

Best known as the world’s leading cocoa exporter, the Ivory Coast also exports coffee, palm oil, cotton and rubber, making it the fourth-largest exporter of goods in Sub-Saharan Africa behind South Africa, Nigeria and Angola.

To this day, agriculture overshadows other forms of business. Not surprisingly, perhaps, privately owned SIFCA, the leading African agribusiness group, is the largest company in the Ivory Coast and owns the country’s biggest palm-oil refinery

Gold mining, however, is a growing business. Lihir’s Bonikro mine — now owned by Australian-basedNewcrest AU:NCM -1.07% — became the first significant gold producer for the country in 2008. For the fiscal year 2013, the mine produced 90,350 ounces of gold. By comparison, the Grasberg mine in Papua New Guinea produced 1.2 million ounces of gold.

Among the other players in the gold fields are London-based Randgold Resources GOLD +0.15% , which operates the Tongon mine (280,000 ounces gold), andAustralia’s Perseus Mining Ltd. AU:PRU +1.72%  which operates the Tengrela Gold Project (not opened yet, but which could yield over 1 million ounces/year) and Morila gold mine (which once produced over 240,000 ounces/gold/year but is winding down operations).

Another new business is developing offshore: oil. Russia’sLukoil LUKOY +2.20% , French Group Total TOT +0.07% , the U.S.’s Anadarco APC +0.03% , Ireland’s Tullow OilUK:TLW +7.63%  and Australia’s African PetroleumAU:AOQ 0.00% all have ongoing deep-water oil-exploration projects.

The national oil company, Petroci, has a share in these projects and others. Aside from oil, the Ivory Coast has gas, which is being used to supply power stations. Petroci owns the gas licenses and SCDM Energy, a subsidiary of the French Group Bouygues FR:EN +0.91% , said it will invest $1 billion to develop gas fields for domestic market use.

Individual investor

Until recently, individual investors required a Sierra Leone or Ivoirian brokerage account to access domestic stocks, but Imara S.P. Reid has launched an investment platform for retail investors to make investments in (almost) any stock market in Africa without multiple brokers.

With that in mind, the Ivory Coast has Bourse Regionale des Valeurs Mobilieres , the West African Regional Stock Exchange covering the eight countries in the WAEMU. The composite index for the 39-member BRVMhas returned 33.94% over one year and 54.02% over two years.

I would caution against investing in indigenous companies, as I see transparency and liquidity as two large issues. That said, there are some multinationals that list on the BRVM including Nestle Cote d’Ivoire, Total CI and Unilever CI .

On the other hand, the best way to describe Sierra Leone’s domestic stock exchanges at this point is “fledgling.” Sierra Leone trades one stock, the Rokel Commercial Bank , with the optimistic, but rather misleading ticker, “RCB.” Rokel was founded by Barclays in 1917, but privatized during the unrest. In fact, there are 24 potential companies waiting since 2002 to be privatized, all underinvested public enterprises dealing with everything from housing to the lottery. In addition, various international companies have expressed interest in becoming listed on the exchange eventually, including African Minerals and London Mining.

When it comes to investing via funds, be sure to read more than just the country weighting, as it’s also difficult for funds to gain exposure to these countries.MarketVectors Africa Index AFK +0.47% , for instance, has to employ “back door” moves by adding companies that get a majority of their revenues from these countries, but are themselves based in developed countries; these include, for example, Tullow Oil, Rangold Resources and African Minerals.

© 2014, Peter Kohli. All rights reserved. – The views expressed here are purely those of the author and not necessarily those of the publishers. – Newstime Africa content cannot be reproduced in any form – electronic or print – without prior consent of the Publishers. Copyright infringement will be pursued and perpetrators prosecuted.