Photo courtesy: Olo Eetu on Unsplash Africa: Reap what you sow Stéphane Colliac, Africa Senior Economist Paris 31.01.2019
AFRICA: THE RESOURCE CURSE IS BINDING IN THE SHORT- RUN 01
AFRICA: GROWTH AMID DIVERGENCE AND RISKS Regional divergences West and East Africa exhibit high growth: Ethiopia, Kenya, Rwanda, Côte d Ivoire, Ghana mainly Central and Southern Africa are suffering from a protracted low growth period: South Africa, Nigeria, Angola North Africa still divided between good performers (Egypt, Morocco) and bad performers (Algeria, Tunisia, Libya) Risk#1: A busy political calendar 1. 1.5% 1.5% Growth and risks in Africa C3 2.9% 2.7% 2.7% Algeria 2.7% 2.5% 2. C4 Tunisia C2 Egypt Morocco B1 5.3% 5.7% 6. 8.5% 9. 9. Main polls: Nigeria and Senegal (February), Algeria (April), South Africa (May), Tunisia (December) Geopolitical troubles and violence are on the rise: Boko Haram (Nigeria, Cameroon, Chad, Niger) Country specific divides: DRC, Cameroon, Ethiopia, Mali Risk#2: The resource curse Oil and metal exporters are suffering from a new price decrease. Some key economies stuck in a low growth regime, resulting from commodity output capacity depletion: Nigeria (for security reasons), South Africa, Algeria, Angola, Liquidity pressures are again increasing in countries with low or decreasing reserves (Zambia, Tunisia, Angola) Low for longer commodity prices are exerting pressure on public finance, particularly in economies with large subsidies and high debt, nurturing social protests: Zimbabwe, Sudan, Tunisia Exchange rate policy: Floating exchange rates acted as shock absorbers (South Africa, Egypt) but FX reform remains difficult particularly in CFA Franc zones (CEMAC mainly) 5. 5.5% 6. 7.5% 7.2% 7. 5.7% 6. 5.5% * C2 Ghana B1 Cameroon Sources: Allianz Research C2 Senegal Côte d Ivoire C3 3.2% 3.5% 3.5% 3.5% 4. 4. Nigeria D3 1.8% 2.2% 2.5% Angola -3. -1. 0. * D4 DRC D4 B3 South Africa Kenya C3 Ethiopia C2 Tanzania 0.7% 1. 1. 6.2% 5.7% 5.5% C3 6.2% 6. 6. Low risk Medium risk Sensitive risk High risk
AFRICA: LOWER COMMODITY PRICES TO HAVE AN IMPACT 800 Commodity prices vs. EM exchange rate 40 Africa: Cumulative financing gap (USD bn) +/- means a gap/surplus 200 42 700 44 150 141 46 600 48 500 50 Depreciation 52 400 54 56 300 Emerging Markets' exchange rate (vs. USD, right) 58 Commodity prices (S&P GSCi, left) 200 60 11 12 13 14 15 16 17 18 19 100 50 0-50 -100 112 105 95 90 95 65 48 45 7 8 1-6 -18-27 -41-50 -57 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19f Sources: IHS Global Insight. Allianz Research Exchange rate pressure is back, as a result of lower commodity prices. Low for longer commodity prices weigh on external deficits, public finance and FX reserves. Sources: Allianz Research As a result, financing needs will remain higher for longer and the rebalancing of deficit economies should be postponed 4
AFRICA: DEBT ACCUMULATION IS ON THE RISE 200 150 100 50 0-50 -100-150 46 45 50 Africa: Current account financing (USD bn) +/- means net inflow/net outflow 12 43 13 37 35 46 26 7-54 -57-56 -9 Current Account Balance - Not covered Current Account Balance - Covered by remittances FDI Debt and equity flows Central Bank foreign reserves evolution Current account balance 51-49 -50-5 -60-35 42 49-55 -86 48 38 31 34-34 -55-57 -18-62 -28 40 60 5-67 -28 38 57-10 -71-34 30 25 20 15 10 5 0 5.2 Africa: Eurobond issuance (USD bn) 2.3 4.5 6.2 7.8 9.5 9.7 17.7 10 11 12 13 14 15 16 17 18 24.7-200 11 12 13 14 15 16 17 18e 19f Others Angola Côte d'ivoire Morocco Kenya Ghana Zambia Nigeria South Africa Egypt Sources: Worldbank, Allianz Research calculations FDI inflows are no longer the main financing scheme. They should not be back to past levels in 2019. So, any debt inflows weakness should reverberate on FX reserves. The Frontier Markets story is alive and kicking. 2018 to be the strongest year despite EMs woes. Is this financing well-suited to address the long-term needs? 5
Angola Benin Burkina Faso Cameroon CAR Chad Congo Cote d'ivoire Egypt Ethiopia Gabon Gambia Ghana Guinea Kenya Madagascar Malawi Mali Mozambique Niger Nigeria Rwanda Senegal South africa Tanzania Tunisia Uganda Zambia AFRICA: RISING DEBT COMPLICATES THE FISCAL EQUATION Debt in % of GDP: Public (1st panel) vs. external (2 nd panel) 18 16 14 1 10 8 6 4 18 16 14 1 10 8 6 4 Public debt increased, particularly in some oil exporters, but debt levels are not back to past highs, except in some specific cases Angola Benin Burkina Faso Cameroon CAR Chad Congo rep Cote d'ivoire Egypt Ethiopia Gabon Gambia Ghana Guinea Kenya Madagascar Malawi Mali Mozambique Niger Nigeria Rwanda Senegal South africa Tanzania Tunisia Uganda Zambia 2000 2018 2002 2018 Africa: Subsidies (% of public spending) vs. public debt (% of GDP) 10 Public debt EGY 9 8 7 6 5 4 3 1 BFA AGO ZMB NAM UGA NGA TUN MUS KEN DZA The double dip observed on commodity prices will test public finance probably more strongly this time. Countries with high subsidies to be the more challenged, as subsidies cut can exacerbate protests (e.g. Zimbabwe). CIV RWA TZA SEN ETH ZAF Subsidies 1 3 4 5 6 7 6
Current account balance (% GDP) AFRICA: THE ADJUSTMENT DILEMMA, INFLATION OR DEFLATION? 25% 15% 1 5% Exchange rate vulnerability Commodity exposure, current account balance, exchange rates and import cover of FX reserves North & West CIV MARCMR 4 6 8-5% EGY BFA COD GHA GNQ MLI GAB -1 SEN DZA -15% - -25% NGA Size of the bubble: currency depreciation 6 4 currency appreciation/ stability vs. USD Commodity exports (% GDP) Sources: IHS Global insight, Allianz Research Color of the bubble: import cover (months) 7+ months 5-7 months 4-5 months 0-4 months COG Current account balance (% GDP) 15% 1 5% East & South BWA AGO ZAF 4 6 8 NAM MUS MDG -5% UGA ZMB KEN RWA -1-15% ETH Size of the bubble: currency depreciation vs. USD Currency appreciation/ stability vs. USD 6 4 Commodity exports (% GDP) Sources: IHS Global insight, Allianz Research Color of the bubble: import cover (months) 7+ months 5-7 months 4-5 months 0-4 months CFA Franc zone 18 16 14 12 10 8 6 4 2 0-2 Inflation in %: 2019 vs 2014 14 19 Cameroon Congo Cote d'ivoire Senegal Togo Benin Chad Morocco Burkina Faso Gabon Mali Rwanda Tanzania CAR Zimbabwe Uganda South Africa Algeria Kenya Tunisia Madagascar Ethiopia Ghana Guinea Nigeria Egypt Zambia Angola DRC Sources: IHS Global insight, Allianz Research Countries with the poorest liquidity levels are vulnerable to capital flows reversals. The main weaknesses arise from high commodity exposure (Central Africa mainly), low reserves amid high exchange rate pressure (Southern Africa). East Africa has more buffers (except Ethiopia). Economic woes were led by inflation in some regions (FX depreciation consequences). Now, the pain is deflation (lower income) for Central Africa CFA zone.
AFRICA: CONFIDENCE IN TOMORROW 02
AFRICA: SHAPE OF THE FUTURE, INFRASTRUCTURE 1/2 80 70 60 50 40 30 20 10 Africa: Power generation, expected spending through 2030 (USD bn) Africa: Capital stock increase (annual average growth, last 10 years), current account balance (% of GDP, 5-year average), and share of the deficit financed through FDI 6% 4% 2% Capital stock NGA increase 2% 4% 6% 8% 1-2% CIV ZMB -4% EGY MOR CMR ZAF -6% KEN AGO MUS UGA -8% -1 Current account balance SEN TUN FDI % curr. acc. deficit: 10 or above 1 or below GHA TZA ETH 0-12% -14% DZA Fast-growing East African Economies RWA -16% Basic infrastructure needs are strong, about USD 1000bn for power generation only in the 15 main African economies: assuming that about one third will be matched still make a USD 330bn opportunity. Upgrading infrastructure level requires the adequate financing. Too high external deficits and/or too low FDI are endangering East African rapid capital stock accumulation path. 9
AFRICA: SHAPE OF THE FUTURE, INFRASTRUCTURE 2/2 Africa: Urban population (% of total population) China s overseas investment and construction activity by region (USD bn) 8 7 1200 RoW North America 1,179 6 1000 Europe MEA Asia 5 4 800 Total 691 3 600 400 1 200 0 2005-12 2013-18 Africa will be the land of urbanization: From those already there to those who will come, many opportunities to make in utilities The Belt and Road Initiative drove USD 280bn to the region since 2013 (2 nd destination behind Asia). Infrastructure to remain one of its main drivers. 10
AFRICA: CHINA OBORTUNITIES Africa: Eurobond issuance (USD bn) Infrastructure agreements Selected list of agreements Kenya: Standard Gauge Railway connecting Monbasa to Nairobi (approx. USD3.8bn) Nigeria: Coastal railway to link Lagos with Calabar, passing through 10 states (USD12bn) Congo DRC: Infrastructure for Mines barter deal (USD6bn) Swap contracts Egypt: currency swap agreement valued at USD2.7bn South Africa: exchange of local currencies of up to R57bn, valued at USD4.75bn Selective partnership through the OBOR projects (for infrastructure hungers) Core countries already involved in the OBOR project Expected positive economic spillovers from OBOR Loans (from 2011 onwards) Angola: USD21.2bn Ethiopia: USD12.3bn deepening financial relations with largest (Nigeria, South Africa), growth leaders (Kenya, Ethiopia) and strategic countries (Angola) 11
AFRICA: SHAPE OF THE FUTURE, TRADE Senegal +4/ +7 Morocco +50/ +50 The African Continental Free Trade Area should make winners and losers. Net gains expected in manufacturing, food and service exporters. Africa: Expected export gains to 2030 Côte d Ivoire +11/ +14 No FTA/ FTA Algeria +39/ +38 Ghana +38/ +52 Gabon +6/ +6 Tunisia +18/ +18 Nigeria +91/ +89 Angola +62/ +77 Cameroon +5/ +8 RD Congo +7/ +14 Egypt +39/ +49 Zambia +11/ +31 Sudan +6/ +7 Ethiopia +14/ +18 Kenya +13/ +18 Tanzania +25/ +28 Mozambique +11/ +11 South Africa +110/ +133 Africa: Additional Cash Flow freed with higher DSOs (USD bn) Morocco +4.9 +1.1 Côte d Ivoire +0.7 Mauritania Ghana +1.6 Mali +0.5 Algeria +4.9 Below or equal to 2% GDP Between 2% and 4% of GDP Between 4% and 6% of GDP Above 6% of GDP Niger +0.2 Nigeria +3 Tunisia Cameroon Benin Togo Gabon Republic of Congo +0.9 +0.5 Libya +2.3 Angola +2.6 Egypt DR Congo Rwanda +1.1 Ethiopia South Africa +1.5 +4.6 Kenya +1. 6 +1.5 Mauritius Madagascar New trade opportunities to develop if supported by more manageable payment terms: going from cash payments to 30 days DSOs should free up USD 33.5bn. +0.3 +0.1 12
Mobile Banking Development potential Index AFRICA: SHAPE OF THE FUTURE, LEAPFROGGING 10 9 8 7 6 5 4 3 1 Africa: Fiscal revenue (% of GDP) and access to electricity (% of population) Electricity NGA COD ETH CMR UGA AGO TZA EGY DZA Overcoming the weak government issue is needed in order to finance long-term needs. E-government techniques should be used to build the Leviathan. CIV KEN ZMB GHA RWA TUN MUS MOZ MOR SEN 5% 1 15% 25% 3 35% 4 ZAF Fiscal revenue Africa: Banking development indices, traditional vs. mobile 80 70 60 50 40 30 20 10 0 Burundi Malaw i Mauritania Senegal Ghana Algeria Tunisia Egypt Angola Kenya Botsw ana Sw aziland Nigeria Cameroon Zambia Uganda Tanzania Benin Mozambique Burkina Faso Niger Madagascar Mauritius Low access to banking services is inhibiting growth. Mobile banking is likely to be used, e.g. in Kenya, Ghana or Mauritius. South Africa Morocco 0 10 20 30 40 50 60 70 Traditional Banking Development Index 13
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