Clouds gather over Africa investment scramble

By Matthew Tostevin - Analysis

LONDON (Reuters) - Kenya's bloody crisis is a reminder of the fragility of a promised African economic renaissance despite the continent's fastest growth in decades.

The shine has quickly come off once-stable Kenya, until now a star performer, as its disputed election led to violence.

But wary investors are also following South Africa's wobbly change of leadership even though the continent's biggest economy is in a different league from others and much steadier.

And while second-ranking Nigeria is still seen as a promising investment, chronic unrest besets its main oil region and permanent questions hang over its political stability.

Some investors see Africa as a good bet because it is relatively isolated from global financial turbulence, but Kenya has made clear that long-standing risks cannot be brushed over.

"Now it seems it will be the other emerging markets that will benefit to the cost of Africa," said Richard Segal at Renaissance Capital, which is increasing its presence in Africa.

Sub-Saharan Africa is doing its best for decades -- lifted by a commodity price boom, debt relief, new investment from Asia, technological change and in some countries better management of public finances and an end to conflict.

The International Monetary Fund projects gross domestic product growth of 6.8 percent in 2008 from 6.1 percent last year and 5.7 percent in 2006. It is one of the few regions where growth is expected to accelerate next year.

SCRAMBLE

More adventurous investors have been keen to snap up assets on a continent traditionally better known for war, famine and disease than for its economic health. Investment bankers have been happy to tout Africa as a new frontier.

"I'd like to think people were coming to this with eyes wide open but some of the pricing suggests the risk is not priced in adequately," said Stephen Bailey Smith of Standard Bank.

Net private capital flows to the continent, excluding Egypt and Libya, are forecast by the IMF at some $46 billion in 2008 from $17 billion in 2004. Private portfolio flows are seen at nearly $15 billion in 2008 from just over $5 billion in 2004.

China, seeking natural resources to power dramatic growth, has become a big new investor in Africa with less concern than Western buyers over issues such as stability or democracy.

Fast growing economies do not always ensure greater stability, particularly when benefits are not felt by everyone.

That is a big complaint in Kenya as well as South Africa, where populist Jacob Zuma shouldered aside President Thabo Mbeki as head of the ruling party and is almost sure to become president himself if he beats corruption charges.