Africa: The Commodity Warrant

In this report, we analyse the investment theme of Africa and the related

opportunities. Historically, African growth has lagged the global average.

Between 1960 and 2001, according to the IMF, average African growth was just

3.2% compared to the global average of 4.1%. However, more recently (2002-

07E), Africa has enjoyed much healthier growth rates in absolute and relative

terms. Aggregate regional GDP growth looks likely to have topped 5% for the

fourth year in a row in 2007E, based on IMF data.

In our view, the current growth rate looks much more sustainable given political

and institutional improvements and greater economic stability. However, Africa

is likely to remain something of a 'warrant' on commodity performance, given

significant oil and mining dependence. But, given a positive view on

commodities, our forecasts for aggregate growth in Africa remain well above

forecasts for global growth. We forecast average African GDP growth of 5.3%

p.a. between 2008 and 2011 compared to 3.4% at the global level.

From an equity perspective, African markets have displayed a low correlation to

other markets and in that respect offer diversification benefits. We see value in

considering this as an indirect investor. We thus consider the prospects for eight

broad sectors and, in particular, how international companies might benefit from

African growth. We identify 111 international stocks that offer exposure to

Africa. We specifically present the Credit Suisse African 20: Alstom, Aurobindo,

CAMEC, Cipla, ENI, Equinox, Hess, Hikma, Illovo Sugar, Isuzu, Marathon Oil,

MTN, Orascom, SABMiller, Sasol, Tav, Total, Tullow Oil, Vivendi, Zain.