Ukraine – An Inside View

ukraine with flag

We thought we’d share an internal view by one of our colleagues about what is going on in the Ukraine.

As you may know, our team is a bit like a little ‘United Nations’ – a diversity that allows us to see things from the ground, through the eyes of locals.

On many occasions, being on the ground has given us an edge. When Kenya had it’s moments of political turbulence, we could tap in to our own local perception or when Dubai went through its financial challenges, being there helped us stay focused on the facts that really mattered. But what truly made us understand the value of being local is our presence in Egypt. It allowed us to see through the ‘smoke screen’ of popular media and helped us to make better investment decisions.

Although we are based in different locations across our investment territory, it doesn’t keep us from being in constant contact with each other. There are always insightful email discussions that ‘snowball’ though our organisation and compound our insights on key developments and trends. It is the sum of these diverse perspectives that shapes our world view and defines what we are all about.

What we are sharing with you here is a comment written a couple of days ago by Jamil Akhundov, one of our colleagues who has a close personal connection with the Ukraine.



Jamil Akhundov. Investment Director, North Africa

Jamil Akhundov – Investment Director, North Africa

“The situation in Ukraine is really troubling. Because I have relatives from the Ukraine, we have been following the escalating crisis very closely, especially over the last 2-3 months. 

Below are some of my observations:

We were watching the media and it was interesting to see the same story interpreted from different angles:

The Western media perspective: traditionally supporting the “Euromaidan” movement, which “stood up to the tyranny of a dictator and enemies of freedom” while the president was on the run.

The Russian media perspective: Quick to identify the “thugs” and nationalists which overthrew a democratically elected president, while the Russian ethnic minority needs to be protected from fanatics and nationalists financed by the

The Western Ukrainian media: overall disappointment with the corrupt and inefficient government and perception of Russia as trying to create a divide and split the country up.

I have spoken with many Ukrainians and have been to the country many times, I have seen people increasingly angry with their government. People simply wanted a fairer society with opportunities, less corruption and more prosperity, but each new government ended up being worse than the previous. 

Finally, the people had enough, took to the street, fought and spilt blood in protest. And now that the goal has been achieved, the ‘old master’ is quick to stir up trouble and impose control with brutal force.

One sad part of the story is also now unfolding. Like with Georgia and Moldova some years ago, it is now becoming clear that the West is not going to provide real help to the Ukrainians. Although the Ukrainians spelt blood and fought hard for the European and Western values, it seems like Ukraine cares about the West more that the West does about Ukraine. 

At this stage it is hard to make any predictions.  However, it seems like for Ukrainian people things will get harder economically and politically before they can get better. In my opinion, the reasons for a Russian invasion are to simply show its power in the region and make sure that any new government in Kiev will need to “consult” with Moscow on all aspects. 

I do not think in the Russians will stay in the Crimea for long, but before leaving they will take serious concessions such as exclusive rights over gas pipelines, Russian minority participation in the government and high gas prices. In addition, I also think politically Ukraine is going to experience some volatility.

In this current moment, it is therefore very important for the West to support Ukraine financially and politically. If a stable government is established under a strong leader, in the longer term, I think Ukraine could recover rapidly and become one of the fastest growing economies, because it has some unbelievably strong assets, including educated workforce, the largest by territory country in Europe, access to the Sea, one of the most arable lands, strong diaspora across the world, rich natural resources, geographic location and beautiful tourist destinations.

I hope this happens sooner than later.”

What the suspension of Nigeria’s Central Bank Governor means for the markets

The headlines in the emerging market investment space are all about the suspension of Mallam Lamido Sanusi, Governor of the Central Bank of Nigeria (CBN). This comes as a result of an executive order issued by the country’s president, Goodluck Jonathan.

And while politics will always just be politics, we’d like to focus on what this really means for the CBN, Nigeria’s financial sector and the impact the event will have on markets.

The suspension of Sanusi will probably have a negative impact in the short term but we don’t believe it will derail the development of Nigeria’s capital markets. We’ll probably see some negative price action, but we expect it to be transient as locals and long term investors  step in to pick up attractive valuations.

Mallam Lamido Sanusi

Mallam Lamido Sanusi

The global finance community may be confused about what is happening here because it holds Sanusi in high esteem. He built a strong reputation by overseeing a number of positive developments while he was at the helm of the CBN.  He especially earned much respect for his decisive actions that helped Nigeria pull its finance sector back together after it was hit hard by the global financial crisis.

He can also claim that under his watch, the CBN evolved into a highly functional and reputable institution. And while Sanusi got applauded around the world, his determination and outspoken nature ruffled many political feathers back home.

Let’s not lose sight of the fact that Sanusi was already scheduled to step down as the head of the central bank on the 1st of June so it is unlikely that his ‘sudden’ departure will compromise the CBN’s functionality or independence. With this in mind, a transition has probably already been in the making for some time. Regardless of how this story evolves during the next few days, this succession was a bridge that we were going to cross anyway.

Dr. Sarah Alade

Dr. Sarah Alade

The reality is that Sanusi did not leave the CBN steerless because deputy CBN governor Dr. Sarah Alade is now running the institution as the Interim Governor. Alade is no stranger to the African investment community and she regularly interacts with the world regarding CBN policy. Having joined the CBN in 1993, she is certainly not a newcomer. In fact, she was expected to become Governor Charles Soludo’s successor in 2009 but lost the bid to Sanusi, her contender at the time.

Alade has the credentials and the credibility to assume the position but she probably won’t be as vocal as her predecessor.

Another thing to bear in mind is that Nigeria’s capital markets are mainly driven by local investors who weren’t too surprised by the president’s move. If you have been following Nigerian finances, you will be aware of the fact that the President already ordered Sanusi to step down in December 2013.

The Central Bank of Nigeria

The Central Bank of Nigeria

In addition, the fact that Sanusi wasn’t seeking a second 5-year term already forced most habitual investors to start thinking about a CBN without him. This also implies that some of the ‘short term’ money may have already traded out of the market well before this debacle.

It’s also worth noting that during the past few years Nigeria’s capital markets have demonstrated a  low correlation with political events so the most experienced emerging market investors have learned to profit from these short-term sell-offs.

And then there are the politics. Most local investors probably understand that because of the intensifying presidential election campaigns that will build up towards the end of the year, we are probably going to see many more big headlines in Nigeria’s notoriously outspoken media. From the outside, it may even be interpreted as instability, causing a temporary disconnect between domestic and foreign sentiment, this in turn could continue to put further pressure on Nigeria’s currency, the naira.

However, The CBN has the FX reserves, a strong balance sheet and an experienced team in the cockpit to manage the naira’s fluctuations so the current concerns around Sanusi’s suspension may be quite overblown.

So, if you believe in Nigeria’s long term value, now is a great time to be on the lookout for opportunities…

NB: Nigeria’s FX reserves cover the country’s total external debt by 500%, this is very high when compared to most developing nations. As a point of comparison, Turkey’s coverage ratio stands ‘only’ around 40%


Silk Invest’s Annual Investment Outlook for 2014

Much in line with our forecast, 2013 turned out to be a great year for the Frontier Markets. A strong base was built for what we see as another year of “continued strength”, which is also our central theme for 2014.

The year of continued market strength

I hope you will take a moment to read our investment outlook and please feel free to get in touch with us if you have any questions or wish to share your feedback with us.

The main highlights:

Macro Environment

We expect a healthy global macro-economic environment with improving GDP growth. Emerging markets have moved into a new cycle of their development and now need to deal with a number of structural challenges as they increasingly play a leading role in the world’s economy. Frontier markets, in contrast, are well positioned with low debt levels and continued GDP growth strength.


Frontier Markets performed well in 2013 with most of its key constituents returning above 20%. We expect this positive trend to continue in 2014. Frontier Markets are still trading below historical levels and are attractively priced across various regions and sectors. Overall, PE ratios remain attractive while dividend yields are twice as high when compared to developed and emerging markets.

Fixed Income

In 2013, it seemed as if investors had ‘nowhere to hide’ from negative and volatile market dynamics across major global bond markets.  We believe that 2014 will be equally challenging as we expect US treasury yields to edge upwards by another 1-2% and the $US to appreciate 5 to 10% versus the major emerging and developed markets currencies. African fixed income markets are probably set for an interesting year as more investors discover its potential for ’shelter’ because of their double digit yields, solid fundamentals and structurally undervalued currencies.

Capital Flows

So far, the gradual wind-down in the US Tapering has had a significant impact on global markets but its effects may eventually improve investors’ risk appetite. Over the past couple of years, the amount of portfolio flows into frontier markets was only a fraction of the total invested in emerging markets. 2013 was a game changer and while emerging markets struggled, frontier markets enjoyed one of it’s best years. This trend is set to continue into the next years.

Why investing in Frontier Markets makes more sense than ever before

The perspective and the belief upon which we built Silk Invest is that, just as was the case with Emerging Markets, the Frontier Markets have a bright future ahead as they aspire to a larger role in the world’s markets and economy.

Today the Frontier Markets represent only 1% of the assets under management invested in emerging markets across the global investment industry.  With this perspective in mind, no matter how you look at it, the Frontier Markets will play an increasingly important role in investor’s portfolios and this is a great opportunity for the early adopter.

Thank you for your continued interest and support. As always, we will endeavour to provide you with deeper insights into Frontier Market investment opportunities as Silk Invest “continues to open new investment routes” for investors

Click here to read our Annual Investment Outlook





dubai skyline

Dubai thinks BIG!

Not that long ago, it saw a future that few dared to envision. In fact, to many people around the world Dubai’s dreams often seemed somewhat silly. But today’s Dubai never fails to inspire awe to anyone who lays eyes on it.

It all seems to be coming together. What was once a bold vision is turning into reality today. It has become a prominent hub in the middle of the World. Every year, it hosts millions of visitors who come for business and pleasure. It has earned the position of the regions’s main point of transit and trade as well as one of the most desirable places to live and work, especially for the large share of the world’s population that lives within only a few hours flight distance from Dubai.

In this podcast, we take you on a virtual trip to Dubai. The piece features impressions from people who live and work there as well as the first impressions from first time visitors. We will also explore what drove the Emiratis to build one of mankind’s most amazing structures in less than a decade and what lies ahead for this increasingly assertive city state.

Take a moment to listen to the podcast – make sure to use a headset so you can enjoy the full audio experience of this 30 minute adventure.

Subscribe to the podcast

on iTunes
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For more perspective on the investment opportunity in Dubai, take a few minutes to watch a video conversation between Zin Bekkali and Baldwin Berges

Have a look at our frontier market funds




About Ethiopia infographicIn this edition of Silk Invest’s Frontier Market Insights we take a close look at what we believe is one of Africa’s great treasures: Ethiopia.

Simba Makoni, Investment Analyst, Private Equity

Simba Makoni, Investment Analyst, Private Equity

This episode features a podcast with  Simba Makoni of Silk Invest’s Private equity investment team. Simba spends much of his time in Ethiopia to focus on our local investment investment activities.

During the podcast, we will discuss not only the investor’s perspective on Ethiopia, but we’ll also highlight some of the things you may not know about this amazing country.

Listen to the Podcast

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At the bottom of this article we also feature a short BBC documentary that we helped make a couple years ago. It provides an interesting perspective of what will possibly become one of Africa’s main growth engines.

We have been investing in Ethiopian private equity for some time now. What we especially find compelling is the B2C opportunity that will result from a rising society of millions of consumers. Our main focus there is on household food staples and our first investment in this space was to help NAS Foods, a leading local biscuits manufacturer, scale up it business in order to meet the rapidly expanding local demand.

Discovering Ethiopia

Upon first visiting Addis Ababa, you will be in for a number of positive surprises. Don’t rush to judge the place by its airport because just like many of its peers around Africa, it needs an upgrade. The discovery experience starts when you take your first breath of Ethiopian air, you will quickly gasp for more a bit more because Addis (what insiders like to call it) is at an altitude of no less than 2,300 meters (7,500 feet).

Ethiopia in the worldIf you land during the daytime, you’ll be amazed by how grassy and green the Addis landscape is and as soon as you step out of the airport terminal the you will notice a peculiar countryside aroma. Close your eyes and you could almost imagine you are somewhere in rural Ireland during a chilly spring evening, not in a country that you were made to believe was a desert with cracks in the dried up soil.

Ethiopia is mostly fertile! Just over 1/3 of Ethiopia’s territory is arable. The same goes for demographics. Ethiopia is the second most populous country in Africa. Combine these features and add some investment and we may be looking at one of the world’s future leading food producers. We discuss this in the podcast.

A New Reality

Ethiopia in its ancient alphabet with its colourful flag.

Ethiopia in its ancient alphabet with its colourful flag.

As we mentioned before, this all stands in stark contrast with all the images we saw on TV during the 1980′s. The famine and human tragedy we witnessed back then was dreadful and happened under the watch of a political regime that now belongs to history, fortunately. The fact is that these visuals installed within us a perception that needs to be corrected. The thing is that you simply don’t often hear about this place so we never really got an update on all the progress that was made since those difficult days.

A typical Addis street scene

A typical Addis street scene

Getting to know Ethiopia is an unforgettable experience on many counts. Personally I think it must be a bit like going to China in the early 1980′s. It doesn’t take much thinking to figure out that it is a place of underestimated potential, with an ancient culture and enough patience to re-build a nation that can live up to re-claim its historical standing in the world’s economy.

Is This Like China in the 1980′s?

China sees the opportunity and invests in power and influence in Ethiopia

China sees the opportunity and invests in power and influence in Ethiopia

Interestingly enough, China must see it in the same way because Ethiopia has a close working relationship with the Asian giant. In many ways it seems like Ethiopia’s government took a few pages from China’s political playbook as it is faced with similar challenge to build an economy for a large population. But China is not alone. Other major investors in Ethiopia are India, Sudan, Germany, Italy, Turkey, Saudi Arabia, Yemen, the United Kingdom, Israel, Canada and the United States.



Since 1994 Ethiopia is governed as a federal democratic republic. The nation is made up of nine ethnically-based semi-autonomous administrative states. All have the power to raise their own revenues, can establish their own government and democracy according to the federal government’s constitution. Public service delivery, including health care, has to a large extent fallen under the jurisdiction of the regions. The approach has been to promote decentralisation and participation of the population in local development activities. Ethiopia is one of the most table political systems in Africa.

A Regional Power.

Ethiopians are very proud of the fact they were never colonised. This makes this nation rather assertive on the regional political scene. Ethiopia has one of Africa’s largest armed forces and has a history of using it to keep the peace in its region. Add to that Addis Ababa is a bit like the Brussels of Africa as it is the home of the African Union which it more of a worldly city than many would believe it to be.

AU building

Watch short BBC Documentary that we helped make a couple years ago. It offers visuals that could make you more familiar with Ethiopia. It also features NAS Foods, the business we invested in.

BBC Ethiopia

We hope this piece provided you with a better understanding of Ethiopia. If you would like to further discuss all this with us, please don’t hesitate to contact us.

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African Local currency title

Africa’s markets are getting much attention by investors with most of the focus on its equity markets.  In our narrated presentation below, we shed some light on Africa’s other rising asset class:  

The local currency sovereign bond space.

We believe that because the fundamentals that underpin Africa’s bond markets are misunderstood it creates a great opportunity for the savvy investor. Today, more of a third of the continent’s 54 sovereign issuers have access to the global markets and we are looking at a menu of solvent credit profiles that are trading at attractive yield levels.

Watch our narrated presentation

You can also listen to the audio version:
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A summary of the key points
The 3 main drivers behind African local currency bond returns
1- High Yields that are also ‘Real’
What we see below is that most of the African local currency bond universe offers double digit yield levels. This is especially the case for Kenya, Ghana and Nigeria which are also some of Africa’s fastest developing bond markets.

FI Actual Local currency yields

Source: Silk Invest; IMF
Note: Yields are based on Silk Invest universe analysis

High yields are meaningless without taking inflation levels into consideration. What we commonly see across Africa is that yield levels exceed inflation rates. This means that investors get a positive ‘real yield’ level. This strongly contrasts with the reality we are facing in the developed markets where yields adjusted for inflation are increasingly negative.

FI Yields & inflation
Source: Silk Invest; IMF; World Bank; Local CB
Why are African inflation levels dropping faster than its interest rates?  We have seen this before in the emerging markets more than a decade ago. As economies develop so do their institutions. We also have seen tremendous improvements in the way that African central banks manage monetary policy.  Over the past 5 years, amid volatile global commodity price dynamics, Africa’s central bankers generally adopted more ‘hawkish’ strategies to quell inflationary pressures. As a result, we have a window of opportunity for capturing real yields in African bond markets.
FI avg inflation levels
Source: World Bank; Silk Invest
2 – Undervalued Currencies
Unlike other emerging markets, most of Africa’s currencies haven’t caught up with those of other emerging markets.  This is mainly because African markets were ignored while capital flows pushed the value of major emerging economies currencies upwards against the US Dollar. We put this into perspective on the chart below by comparing the change in value of the main African currencies to the Brazilian Real over the past 10 years.
FI 10yr relatie currency
Source: Silk Invest; IMF; Date End September 2013
African currencies are structurally undervalued. Another way to evaluate the relative value of Africa’s currencies is by adjusting their value by Purchasing Power Parity (PPP). In the chart below we again take Brazil into this example along with the Swiss Franc, which is widely regarded as the ultimate currency of refuge in difficult times. What the chart below suggests is that Africa’s currencies are are currently valued at a discount.
FI PPP conversion
Source: World Bank; Silk Invest
What about the volatility of African currencies? Individually, African currencies can be volatile when valued against ‘hard’ currencies such as the US Dollar and the Euro. Because each African economy has its own characteristics, so do its currencies. What we see on the chart below is that correlations between African currencies only averaged 6% over the past 10 years. What this means is that the volatility of African currencies can be mitigated by diversification. This will allow investors to keep a good deal of the high local currency yields as returns.
FI correlation
3 – Solid Credit Profiles and improving institutions
Africa’s economies have strong balance sheets. Healthy sovereign financial debt to reserves ratios stand in stark contrast with those of the developed world as debt levels are well backed by ‘collateral’ either in the form of reserves or other tangible assets such as natural resources..
FI Debt & Reserves

Source: Silk Invest; IMF
Note: Yields are based on Silk Invest universe analysis

The rise of the African Institutional Investor. As Africa’s economies develop, so do it’s institutions. If we take Nigeria as an example, It’s pension fund asset pool has more than tripled over the past 5 years. And let’s not forget that as institutional assets under management grow, so does the demand for local fixed income.

FI Pension fund assets

Source: World Bank; IMF; Silk Invest
Note: Based on latest available data as of date of publication

The African local currency bond universe is rapidly expanding. Even though Africa’s local bond universe has expanded by more than 10-fold over the past decade it is still only at 20% of the size of emerging market debt a decade ago. What this means is that African debt markets are increasingly becoming liquid.
FI Total outstanding debt

Source: AFDB; World Bank; IMF; Silk Invest
Note: Based on latest available data as of date of presentation

Good Credit, High Yields. When we put the African debt market into perspective with other major sovereign borrowers, it becomes very obvious that there is an anomaly in the valuation dynamics of global bond markets. We believe this slide speak for itself for making the case for Africa’s sovereign bond markets.
FI Scatter
In conclusion, the main thought we would like to leave with you is that this anomaly provides an attractive investment opportunity.
And finally…
Speaking of anomalies, as we write this, the US government is in ‘shutdown’ mode which could mean that the US Treasury may miss a debt payment. Regardless, US Treasuries managed to appreciate by attracting more flows out of emerging markets into this ‘safe haven’…

Investing in Africa is Silk Invest’s main focus. Have a look at our frontier market funds


Silk Invest’s Daniel Broby recently shared his perspective on the frontier markets during an interview on Bloomberg television.

The initial context of this conversation is around Syria’s civil war and Daniel points out that these geopolitical events are unfortunately part of the reality of global investing, so frontier market investors can’t just hit the “pause button” but always need to put the full opportunity set into perspective.

Click on the image to view the video interview

Screen Shot 2013-09-10 at 14.11.22

When asked to define the frontier market space, Daniel explains that the bulk of the frontier market universe is located in Africa and the Middle East. Another point that comes up is one of the reasons why frontier markets are currently behaving better than the emerging markets during their recent downturn.

Africa now has close to 1 billion consumers. They live in economies that are rapidly industrialising, democratising and playing a role in the global trading community. When you consider its current below-average levels of GDP per capita, this space offers a valuable and highly ‘visible’ 10-15 year opportunity set for investors.

The frontier markets are much like a replay of the rise of emerging markets from their humble status just over a decade ago. However, most institutional investors remain stuck with the dilemma of trading in liquidity for the rich long term opportunities.

Despite the fact that all the the frontier markets already acount for a share of the world economy that is increasingly difficult to ignore along with a substantial portion of the global land mass and its population, they hardly appear in investor’s portfolios… at least for now.

Have a look at our frontier market funds