Africa in 2018 What to expect A presentation to the Norwegian African Business Association (NABA) January 2018 Roy Mutooni, CFA, MBA (Tel: + 27 (0) 11 243-4004, roy.mutooni@abam.com)
African Growth: Cyclically Synchronised, Structurally Diverse Economic growth on the African continent slowed from 2014 to 2017 due to a combination of adverse weather patterns, depressed commodity prices, the strong dollar and unorthodox policy response in some cases. We think 2017 was a recovery year, and expect this cyclical recovery to persist and gain momentum over 2018 across the continent. Longer term, we expect Africa will grow to be a US$29tn economy by 2050, larger than the 2012 combined size of the US and Eurozone. This growth will however be unevenly distributed depending on each country’s approach to investment, structural ref orm and productivity. • The key drivers of the recent weakness: • Low commodity prices in the face of the stronger dollar; • Sluggish global macro-economy particularly China; • Policy inconsistency, and unorthodoxy particularly around foreign exchange; • Some countries however managed to capitalise on the circumstances: • Non resource based economies, particularly oil importers; • Those with coordinated policy and orthodox policy responses; • 2016 was the bottom, 2017 and 2018 will show growth off this base, driven by: • Rising commodity prices, underpinning growing private sector demand in resource countries; • Further entrenchment of sound macroeconomic policies, reform and an improving business environment. • The key risks to our views include policy error in the developed world, and excessive debt accumulation without concomitant increase in investment, productivity levels and exports in African countries. 2
Africa: A framework for analysis While Africa is comprised of 54 unique countries, we have developed a framework that allows us to analyse the broader economic trend lines, assessing relative market attractiveness before narrowing down to individual countries. We use this to develop our outlook for the continent over three horizons: We think the key drivers of economic growth and market attractiveness in Africa are the following: • Over the short term: • Acceleration of GDP growth; • Credit growth; • Currency valuation; • Over the medium term: • Commodity prices; • Level of indebtedness; • Over the long term: • Commitment to reform; • Human capital development: there is a strong link between literacy rates and industrialisation. 2
The interplay of these factors drives the inherent cyclicality of the markets 10 10-yr rolling average SSA GDP real % ch (WB to 1979, IMF from 1980) 2011 IMF 8 Forecasts 6 4 2 0 -2 15
THE STORY SO FAR… MARKET PERFORMANCE MACRO THEMES OVER TIME 1 200 2000-2008: Deleveraging 2008-2015: Re-leveraging 2015+: Reform + Commodity Boom + Consumption up until oil crash & Investment? 1 000 - Terms of trade: In 2002, 19 barrels of oil - Post crisis re-leverage: SSA debt to GDP - 5 major devaluations were equivalent to 1 cell phone. increased to 37% in 2014 In 2008, that fell to 1 barrel of oil - East Africa & North Africa GFCF/GDP > West and 800 - Consumption: Public sector wages rose - HIPC de-leverage: In 2002, SSA had 67% Southern Africa faster than GDP from 2008 to 2014 debt to GDP. In 2008 it was 24% 600 400 200 - May-02 May-03 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 Africa EM FM DM 15
2016-the bottom; 2017- return to growth Average GDP growth % pa - Africa, by region Average GDP growth - Africa by exports % pa 6,0 5,0 5,0 4,0 4,0 3,0 3,0 2,0 2,0 1,0 1,0 - - 2015 2016 2017 2018 2015 2016 2017 2018 Southern Africa West Africa East Africa North Africa Non commodity based economies Commodity based economies Average GDP growth – Global select regions % pa Average GDP Growth – Africa by size % pa 6,0 6,0 5,0 5,0 4,0 4,0 3,0 3,0 2,0 2,0 1,0 1,0 - 0,0 2015 2016 2017 2018 2015 2016 2017 2018 2019 2020 2021 2022 large economies mid sized economies smaller economies World Middle East and North Africa Sub-Saharan Africa 16
Investors have began to return…. Rolling Africa 12wk flows ($mn) Nigeria – rolling 12-week net inflows ($mn ) Rolling Frontier 12wk flows ($mn) 200 1500 150 100 1000 50 500 0 -50 0 -100 -500 -150 -1000 -200 jan.08 jan.09 jan.10 jan.11 jan.12 jan.13 jan.14 jan.15 jan.16 jan.17 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Egypt – rolling 12week net inflows ($mn) Kenya – rolling 12-week net inflows ($mn) 350 100 300 80 250 60 200 40 150 20 100 0 50 -20 0 -40 -50 -60 -100 -80 -150 -100 -200 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 16
Currencies have adjusted…. … improving competitiveness of exports 130 EM aggregate REER FM Aggregate REER 125 120 115 110 105 100 95 90 85 80 jan.95 jan.98 jan.01 jan.04 jan.07 jan.10 jan.13 jan.16 15
16 Underpinned by benign fiscal position 10,0 20,0 30,0 40,0 50,0 60,0 -20,0 -15,0 -10,0 10,0 -5,0 - 0,0 5,0 Nigeria Nigeria Egypt Egypt South Africa South Africa Algeria Algeria 2015 2015 Morocco Morocco Current account balance % GDP Angola Angola Debt service % exports Sudan Sudan 2016(e) 2016 (e) Ethiopia Ethiopia Kenya Kenya Tanzania Tanzania 2017(p) 2017 (p) Ghana Ghana Tunisia Tunisia Congo, Dem. Rep. Congo, Dem. Rep. 2018(p) Côte d’Ivoire 2018 (p) Côte d’Ivoire Cameroon Cameroon Uganda Uganda Zambia Zambia Zimbabwe Zimbabwe Botswana Botswana Senegal Senegal 10,0 20,0 30,0 40,0 50,0 60,0 100,0 20,0 40,0 60,0 80,0 - 0,0 Nigeria Nigeria Egypt Egypt South Africa South Africa Algeria Algeria Morocco 2015 Morocco 2015 Angola Angola Total Investment % GDP Debt outstanding % of GDP Sudan Sudan 2016(e) Ethiopia 2016 Ethiopia Kenya Kenya Tanzania Tanzania 2017 2017(p) Ghana Ghana Tunisia Tunisia D R Congo 2018 Congo, Dem. Rep. Côte d'Ivoire 2018(p) Côte d’Ivoire Cameroon Cameroon Uganda Uganda Zambia Zambia Zimbabwe Zimbabwe Botswana Botswana Senegal Senegal
….driven by diversified sources of finance Frontier assets under management, $mn While more and better aid will remain crucial for low-income and fragile economies, private flows will play an increasingly 30 000 Global Frontier Regional Frontier in mainstream GEM funds important role to mobilise finance and to spur local development and entrepreneurship • Local pension funds – roughly 5% of GDP in Nigeria, significant 20 000 in Ghana, Zimbabwe, Kenya 10 000 • Foreign lending to fund investment – e.g. for Nigeria China’s $12bn railway construction, or more widely Obama’s Power for 0 1999 2001 2003 2005 2007 2009 2011 2013 2015 Africa scheme – above and beyond World Bank loans FDI into Africa (% GDP) • Foreign direct investment – has grown from 0.5% of GDP to 2% 12,0 12 of GDP or more: In 2017, total external flows are expected to reach 9,0 9 USD 179.7 billion, up from USD 177.7 billion in 2016. 6,0 6 • Remittances: Remittances are projected to increase to USD 66.2 3,0 3 billion in 2017, 2.4% higher than the previous year. • Foreign portfolio equity investment – SSA is 20-25% of MSCI 0,0 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 Frontier and total funds invested remain low Africa (LHS) Eastern Africa Middle Africa 29 Northern Africa Southern Africa Western Africa
Markets are becoming more business friendly Ease of doing business index -Absolute World Bank score (lhs) in Corruption perception index (CPI)- 0 (highly corrupt)-10 least 2017 and 2018, and change (rhs) corrupt) 90 5 7 80 6 4 70 5 4 60 3 3 50 2 2 40 1 30 1 0 20 0 Nigeria Egypt South Africa Algeria Morocco Angola Sudan Ethiopia Kenya Tanzania Ghana Tunisia Congo, Dem. Rep. Côte d’Ivoire Cameroon Uganda Zambia Zimbabwe Botswana Senegal 10 0 -1 Nigeria Zambia Senegal Rwanda Kenya Mauritius Ethiopia Ivory Coast Zimbabwe Uganda Ghana Tanzania Morocco Tunisia 2017 2018 Change 2010 2011 2012 2013 2014 2015 2016 18
..and the workforce better empowered Industrialisation requires over 70% literacy rates - sub 40% literacy implies no sustainable growth possible: African equity markets that are industrialisation candidates: 5 in 2000, 12 in 2015 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04 2005-09 2010-14 2015 Botswana 69 81 88 88 Cote d'Ivoire 34 36 49 41 43 Egypt 38 44 56 69 74 76 Ethiopia 27 36 34 49 Ghana 58 71 77 Kenya 82 72 78 Morocco 30 42 52 56 67 72 Nigeria 55 55 51 60 Rwanda 38 58 65 67 71 Senegal 27 39 46 47 56 South Africa 76 82 91 93 95 Tanzania 59 69 73 80 Tunisia 48 59 74 77 80 81 Uganda 56 68 71 72 74 Zambia 65 68 69 61 83 85 Zimbabwe 78 84 84 87 25
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