Download 2013Q2 - 10 - SubSahara Africa - Insights

10
Emerging Markets Outlook – April 2013
Marijke Zewuster, tel +31 20 383 0518
Sub Sahara Africa: A region on the rise
Sub-Saharan Africa is the collective name for the 47 countries
situated to the south of the Sahara. The largest three, South
Africa, Nigeria and Angola, account for about three-quarters of
the Sub-Saharan GDP, but are jointly responsible for just
under 1% of global GDP. It is therefore no wonder that this
fragmented area receives scant attention in publications about
emerging markets. Moreover, many of these countries were
long synonymous with poverty and prolonged cross-border and
internal conflicts. However, although this region is far from an
oasis of peace and calm, it has witnessed a growth spurt in the
past ten years, not least driven by China’s insatiable hunger for
all sorts of commodities.
Strong commodity-driven growth
Buoyed up by the rapidly accelerating demand for
commodities, 20 of the 47 Sub-Saharan countries grew by an
average of 5% or more in the first ten years of this century.
Top performers were Equatorial Guinea, with average annual
growth of 18%, followed by Angola (11%), Chad and Sierra
Leone (10%) and Ethiopia and Liberia (8.5%). Nigeria also
performed fairly well, with growth of 6.5%. South Africa’s
performance looks meagre by comparison, with growth running
at just over 3.5%. And the future also looks bright. China’s
demand for commodities will not abate in the coming years,
and will lead to substantial investments in mining and
infrastructure. Added to this, the resulting rise in prosperity will
fuel private consumption. For the 2012 to 2015 period, the EIU
projects that GDP growth in countries like Angola, Ghana,
Mozambique, Nigeria and Tanzania will average more than 7%
per year.
South Africa has the most diversified economy of all the SubSaharan countries, but here too commodities are major export
drivers. Platinum, gold and coal accounted for about a third of
export income in 2012.
Internal dynamics are gathering momentum
Meanwhile, thanks to the swelling ranks of the middle class, a
steadily expanding share of the region’s economic growth is
domestically driven. According to a report by the African
Development Bank from 2010, the middle class has more than
doubled since 1980 (from 126 million people in 1980 to 350
million in 2010). Measured in percentages of the population,
the middle class expansion is slightly less spectacular, namely
from 27% to 34%. Incidentally, the annual income of this group
remains very low, varying between USD 1,450 and USD 7,500.
Current Account and FDI
% GDP
8
6
4
2
0
-2
-4
90
93
96
99
02
Current Account
05
08
11
FDI
Source: EIU
Economic growth
% yoy
91-00
01-10
Angola
1.3
10.9
Ethiopia
3.0
Ghana
5.0
Kenya
Nigeria
2011
2012
2013
2014
4.0
8.0
8.3
5.9
8.5
7.3
8.0
7.5
7.2
6.3
14.4
7.1
7.5
7.4
1.6
4.2
4.4
4.1
4.8
5.1
4.8
6.5
7.5
6.7
6.8
7.2
South Africa
1.8
3.6
3.5
2.6
2.8
3.8
Tanzania
4.3
7.0
6.3
6.9
7.1
7.3
Average
1.9
4.6
3.3
4.6
4.8
5.0
Source: EIU, ABN AMRO Group Economics
While there are major differences in the various countries’
export products, oil is rapidly coming to the fore as the
dominant regional export commodity. The Angolan and
Nigerian economies are almost exclusively propelled by oil,
which is also visibly gaining in significance in Ghana and Ivory
Coast, which were traditionally countries where cocoa held
sway as the largest export earner. In 2012, over 20% of
Ghana’s exports consisted of oil, with cocoa trailing at 13%.
Looking at the per capita GDP as a rough yardstick for
prosperity growth, we see that South Africa and Gabon are
among the richest countries, with per capita GDP above USD
10,000 (measured in purchasing power parity), closely
followed by Angola and Namibia with per capita GDP of
around USD 7,000. Particularly striking is the extremely rapid
threefold increase in Angola's per capita income. In the past 10
years, the country’s economy grew at an average of 10% per
year, the same rate as China. Still, in the majority of the
countries, including some rapid growth countries like Nigeria,
Mozambique and Tanzania, per capita GDP is still below USD
2,000.
South Africa and Nigeria, neck and neck for first place
The biggest country on the continent, South Africa, only has a
0.5% share of the global GDP, which is much smaller than the
BRIC countries, for instance. South Africa is closely followed
by Nigeria, with a share of 0.4%. Over the past ten years, the
Nigerian economy has expanded by 7% annually, more than
twice as fast as South Africa, and growth is expected to
11
Emerging Markets Outlook – April 2013
continue unabated in the coming years. Nigeria therefore looks
set to overtake South Africa as the region’s largest economy
within the foreseeable future, thus recapturing the position it
lost in the second half of the 1980s. Nigeria was the region’s
largest economy until 1986, but the economic collapse in that
year allowed South Africa to take over the leading position.
After languishing in stagnation for ten years, Nigeria started to
clamber out of the trough in the mid-1990s. This is probably
why Nigeria, unlike South Africa, is among the 11 countries
(Next-11) identified by Jim O'Neill • economist at investment
bank Goldman Sachs and originator of the term "BRIC" • as
the world’s most important growth markets alongside the BRIC
countries.
Investment level still leaves something to be desired
Because domestic savings in Sub-Saharan Africa are still at an
extremely low level, foreign direct investments (FDI) represent
an important source of funding. It should be noted, however,
that a mere 2% to 3% of global FDI goes to Sub-Saharan
Africa and only a few countries receive the lion’s share of
these investments. Apart from the modest size of the
economies themselves, other factors such as widespread
poverty, poor infrastructure and lingering political instability
certainly play a role in the modest size of the investments.
or more rating agencies, another striking fact is the small
number of adjustments that take place, which has partly to do
with the fact that most countries only very recently got a first
rating. The only change in 2011 was the single notch upgrade
all three leading rating agencies awarded to Angola. In 2012,
there were two upgrades and two downgrades. South Africa
was entirely responsible for the downgrades in 2012, being
reduced from A3 to Baa1 by Moody’s and from BBB+ to BBB
by S&P. Fitch followed suit early in 2013 with a downgrade to
BBB.
The same structural factors that impede a stronger inflow of
FDI also clearly stand in the way of an improvement in the
region’s creditworthiness. Most countries achieve very poor
scores on competitiveness and corruption. In addition, despite
the strong economic growth, the average per capita income
remains very low, while certain countries are also contending
with a fairly sizeable public debt. In short, though the region’s
expansion seems unstoppable, it will take some time before
this translates into a significant improvement in the economic
structure and a more stable political environment. Much will
depend on how the income generated from the region’s wealth
of natural resources is used in the coming years.
Some key figures for 2012
According to EIU figures, Angola is by far the leader of the
pack when it comes to FDI, attracting no less than 28% of the
regional total, followed by Nigeria with 13% and South Africa
with 11%. The three largest countries thus jointly swallow up
just over half of the FDI into Sub-Saharan Africa. Nevertheless,
FDI remains significant, particularly for some smaller countries.
Mozambique, for instance, receives only 4% of FDI into SubSaharan Africa, but this represents over 15% of its GDP,
whereas FDI only represents 2% of GDP for Nigeria and 1.5%
for South Africa.
Multilateral and bilateral development aid remains the most
important source of foreign funding for African governments,
taking a share of over 75%. The issuance of international
government bonds is still in its infancy. According to a report
from Moody’s, however, there is growing interest in such bond
issues and more countries are expected to tap this market.
Low creditworthiness
Although South Africa has grown at only half the rate of Nigeria
in the past ten years, it still has the most diversified and
prosperous economy in Africa and boasts a strongly developed
and reasonably healthy financial sector. As a result, for many
years credit rating agencies have awarded South Africa
investment grade status. The only other countries with this
rating in Sub-Saharan Africa are Botswana, Namibia and
Mauritius. Of the other 14 countries with a credit rating, only
Angola, Gabon and Nigeria come anywhere close to
investment grade, namely BB-. Besides the small number of
countries (18) that are deemed worthy of a credit rating by one
S-Africa
GDP ($ bn)
Population (mln)
379
Nigeria Angola
275
123
Kenya Ethiopia
41
38
Ghana
37
49
170
20
43
87
26
7763
1617
6114
967
434
1456
GDP growth (%)
2.6
6.6
8.0
4.1
8.0
7.1
Inflation (%)
5.8
12.2
10.2
9.4
23.3
9.1
Budget balance #
-4.8
-3.6
8.5
-5.0-
-3.1
-6.9
Government debt#
40
19
21
52
42
48
Current Account #
-6.4
5.0
12.0
-9.6
-3.3
-13.2
Competitiveness*
52
115
na
106
121
103
Doing Business**
39
131
172
121
127
64
Corruption***
69
139
88
139
113
64
BBB
BB-
BB-
B+
na
B+
GDP per capita ($)
Rating S&P
Source: ABN AMRO Group Economics, EIU and others
* World Economic Forum, Global Competitiveness Index (rankings 1-144)
** Worldbank, Ease of doing business survey (rankings 1-185)
*** Transparency International, Corruption Perceptions Index (rankings 1-183)
# % GDP