Africa in 2018 What to expect

Transcription

1 Africa in 218 What to expect A presentation to the Norwegian African Business Association (NABA) January 218 Roy Mutooni, CFA, MBA (Tel: + 27 () , roy.mutooni@abam.com)

2 African Growth: Cyclically Synchronised, Structurally Diverse Economic growth on the African continent slowed from 214 to 217 due to a combination of adverse weather patterns, depressed commodity prices, the strong dollar and unorthodox policy response in some cases. We think 217 was a recovery year, and expect this cyclical recovery to persist and gain momentum over 218 across the continent. 2 Longer term, we expect Africa will grow to be a US$29tn economy by 25, larger than the 212 combined size of the US and Eurozone. This growth will however be unevenly distributed depending on each country s approach to investment, structural reform 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; 216 was the bottom, 217 and 218 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.

3 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

4 The interplay of these factors drives the inherent cyclicality of the markets 1 1-yr rolling average 8 SSA GDP real % ch (WB to 1979, IMF from 198) 211 IMF Forecasts

5 THE STORY SO FAR MARKET PERFORMANCE MACRO THEMES OVER TIME : Deleveraging + Commodity Boom : Re-leveraging + Consumption up until oil crash 215+: Reform & Investment? Terms of trade: In 22, 19 barrels of oil were equivalent to 1 cell phone. In 28, that fell to 1 barrel of oil - HIPC de-leverage: In 22, SSA had 67% debt to GDP. In 28 it was 24% - Post crisis re-leverage: SSA debt to GDP increased to 37% in Consumption: Public sector wages rose faster than GDP from 28 to major devaluations - East Africa & North Africa GFCF/GDP > West and Southern Africa May-2 May-3 May-4 May-5 May-6 May-7 May-8 May-9 May-1 May-11 May-12 May-13 May-14 May-15 May-16 May-17 Africa EM FM DM 15

6 216-the bottom; 217- return to growth Average GDP growth % pa - Africa, by region Average GDP growth - Africa by exports % pa 6, 5, 5, 4, 3, 2, 4, 3, 2, 1, 1, Southern Africa West Africa East Africa North Africa Non commodity based economies Commodity based economies 6, Average GDP Growth Africa by size % pa 6, Average GDP growth Global select regions % pa 5, 5, 4, 4, 3, 3, 2, 2, 1, 1, , large economies mid sized economies smaller economies World Middle East and North Africa Sub-Saharan Africa

7 Investors have began to return. Rolling Africa 12wk flows ($mn) Rolling Frontier 12wk flows ($mn) 2 Nigeria rolling 12-week net inflows ($mn) jan.8 jan.9 jan.1 jan.11 jan.12 jan.13 jan.14 jan.15 jan.16 jan.17 Kenya rolling 12-week net inflows ($mn) Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Egypt rolling 12week net inflows ($mn) Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

8 jan.95 jan.98 jan.1 jan.4 jan.7 jan.1 jan.13 jan.16 Currencies have adjusted. improving competitiveness of exports EM aggregate REER FM Aggregate REER 8 15

9 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 Nigeria Egypt South Africa Algeria Morocco Angola Sudan Ethiopia Kenya Tanzania Ghana Tunisia D R Congo Côte d'ivoire Cameroon Uganda Zambia Zimbabwe Botswana Senegal 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 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 Underpinned by benign fiscal position 1, 5,, -5, -1, -15, -2, Current account balance % GDP 1, 8, 6, 4, 2,, Debt outstanding % of GDP (e) 217 (p) 218 (p) (e) 217(p) 218(p) Debt service % exports Total Investment % GDP 6, 5, 4, 3, 2, 1, - 6, 5, 4, 3, 2, 1, (e) 217(p) 218(p)

10 .driven by diversified sources of finance While more and better aid will remain crucial for low-income and fragile economies, private flows will play an increasingly important role to mobilise finance and to spur local development and entrepreneurship Local pension funds roughly 5% of GDP in Nigeria, significant in Ghana, Zimbabwe, Kenya Foreign lending to fund investment e.g. for Nigeria China s $12bn railway construction, or more widely Obama s Power for Africa scheme above and beyond World Bank loans Foreign direct investment has grown from.5% of GDP to 2% of GDP or more: In 217, total external flows are expected to reach USD billion, up from USD billion in 216. Remittances:Remittances are projected to increase to USD 66.2 billion in 217, 2.4% higher than the previous year. Frontier assets under management, $mn 3 Global Frontier Regional Frontier in mainstream GEM funds FDI into Africa (% GDP) 12, 12 9, 9 6, 6 3, 3 Foreign portfolio equity investment SSA is 2-25% of MSCI, Frontier and total funds invested remain low Africa (LHS) Eastern Africa Middle Africa Northern Africa Southern Africa Western Africa

11 Nigeria Zambia Senegal Rwanda Kenya Mauritius Ethiopia Ivory Coast Zimbabwe Uganda Ghana Tanzania Morocco Tunisia 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 Markets are becoming more business friendly Ease of doing business index -Absolute World Bank score (lhs) in 217 and 218, and change (rhs) Corruption perception index (CPI)- (highly corrupt)-1 least corrupt) Change

12 ..and the workforce better empowered Industrialisation requires over 7% literacy rates - sub 4% literacy implies no sustainable growth possible: African equity markets that are industrialisation candidates: 5 in 2, 12 in Botswana Cote d'ivoire Egypt Ethiopia Ghana Kenya Morocco Nigeria Rwanda Senegal South Africa Tanzania Tunisia Uganda Zambia Zimbabwe

13 KEY MARKET OUTLOOK SUMMARY Short term drivers Medium term drivers Long term factors 25 GDP growth momentum Credit growth Currency valuation Rising commodity prices level of external indebtedness Ability to service external debt from exports commitment to economic reform Nigeria positive low fair positive low high low low Egypt positive low cheap neutral low but rising high high average South Africa positive low fair positive moderate low low high Algeria negative low fair positive low high low high Morocco positive low fair neutral moderate high high high Angola negative N/A expensive positive moderate high low average Sudan flat moderate N/A positive moderate high low low Ethiopia flat N/A expensive neutral low moderate-declining low low Kenya flat low expensive neutral moderate moderate-declining moderate high Tanzania flat low fair positive low high moderate high Ghana positive moderate cheap positive high high high high Tunisia positive moderate cheap positive high high high high Congo, Dem. Rep. negative moderate expensive positive low high low average Côte d Ivoire flat moderate expensive neutral moderate high moderate low Cameroon flat moderate expensive positive low high moderate high Uganda positive low cheap neutral low high high high Zambia positive low expensive positive high high low high Zimbabwe positive N/A expensive positive high moderate moderate high Botswana negative moderate fair positive low high high high Senegal positive moderate fair neutral high high high low literacy rate

14 ABSA INVESTMENT MANAGEMENT A division of Absa Wealth, Investment Management and Insurance (WIMI) Over 3 years of experience Over R25 billion in assets under management Quality outcomes for our clients Combined investment expertise with a sustainability mind-set Sustainable long-term returns in accordance with UN Principles for Responsible Investment 2

15 ABSA ACTIVE ASSET MANAGEMENT The active asset management division of Absa Investment Management Leading retail and institutional asset manager in South Africa with over R13 billion in AUM Formed in 1997, adopted a Franchise model in 214 Six franchises: South African Equities, Fixed Interest, Absolute, Balanced, Property, Pan-Africa PAN - AFRICA 3