ETF XRAY

South Africa: economy overview

South Africa is the economic powerhouse of Africa, with a gross domestic product (GDP) four times that of its southern African neighbors and comprising around 25% of the entire continent's GDP.
The country leads the continent in industrial output (40% of total output) and mineral production (45%) and generates most of Africa's electricity (over 50%).
Its major strengths include its physical and economic infrastructure, natural mineral and metal resources, a growing manufacturing sector, and strong growth potential in the tourism, higher value-added manufacturing and service industries.
South African banking regulations rank with the best in the world. The sector has long been rated among the top 10 globally. There are 55 locally controlled banks, 12 foreign-controlled banks and five mutual banks. Some of the world's leading institutions have announced their intention to enter the local banking sector through mergers and acquisitions.
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Time for African ETF?

An exchange-traded fund for Africa? Why would anyone want to invest in Africa with its high levels of poverty, corruption, atrocious infrastructure and bureaucratic roadblocks.

Nicholas Vardy writing in Seeking Alpha notes that between 1995 and 2005, African stocks showed compound annual growth of 22%. Last year, the stock market in Kenya rallied 46%, and the local index is up 9x in dollar terms over the past ten years. In 2006, equities in Morocco were up 75%, 69% in Uganda, and 55% in Botswana. Nigeria's stock market's capitalization has doubled over the 12 months to about $45 billion.

Then there is the China factor. The Chinese leadership has targetted China as a region where there is a great power vacuum they wish to fill not to mention ample natural resources to fuel its 10% plus economic growth. Trade between China and Africa soared 40% to a record $55.5 billion last year. Direct investment has reached a cumulative $6.5 billion and a third of Chinese oil now comes from Africa.

Nigeria has been doing particularly well with a GDP that more than doubled between 2003 and 2006 and thanks to strong oil exports has foreign exchange reserves of just under $50 billion.
These markets are, of course, rather thin making an ETF problematic but don't be surprised to see an African ETF in the next year or two. The new SPDR Middle East and African ETF (GAF) does offer limited expsoure to Nigeria.

By Carl Delfeld of the Chartwell ETF Advisor