standard chartered africa - resources for growth july 6
TRANSCRIPT
8/9/2019 Standard Chartered Africa - Resources for Growth July 6
http://slidepdf.com/reader/full/standard-chartered-africa-resources-for-growth-july-6 1/5
Standard Chartered Global Focus | 06 July 2010
Charts of the year – Africa
Chart 1: CPI trends allow for easy monetary policy‘Frontier’ Africa inflation, by region, % y/y
Chart 2: Global outlook still mattersWorld growth vs. African export volumes, %
0
5
10
15
20
25
30
2007 2008 2009 2010
Southern Africa East AfricaWest Africa
-15
-10
-5
0
5
10
15
1980 1984 1988 1992 1996 2000 2004 2008
-2
-1
0
1
2
3
4
5
6
Africa export volume World GDP growth (RHS)
Sources: Datastream, Standard Chartered Research Sources: IMF, Standard Chartered Research
Chart 3: Africa’s hopes lie in increased South-Southand intra-regional tradeDestinations of Africa’s exports, % of total exports
Chart 4: Rapid urbanisation should spur productivitygrowthRural-urban population mix
0
10
20
30
40
50
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
EU Asia US Emerging markets
0
20
40
60
80
100
SSA World LDCs China India
Urban % Rural %
Sources: IMF DoTS (Jan-Oct 09), Standard Chartered Research Sources: Standard Chartered Research United Nations, data
estimates for 2010
Chart 6: Still-elusive Green Revolution could be agame-changer
Top 10 African countries in terms of potential arable land
0
20,000
40,00060,000
80,000
100,000
120,000
140,000
160,000
180,000
C o n g o
A n g o l a
S u d a n
T a n z a n i a
N i g e r i a
M
o z a m b i q u e
Z a m b i a
C e n t r a f .
R e p .
E t h i o p i a
C a m e r o u n
T h o u s a n d H a
Chart 5: Return on infrastructure rises witheconomies of agglomeration and city growth
Number of cities with more than 1mn people
No. of cities withpopulation >1mn
Sub Saharan Africa(SSA)
51
China 107
India 51
Western Europe 18
Middle East(Western Asia) 19
Sources: Standard Chartered Research ,UN World Urbanisation
Prospects, 2007 Sources: FAO, Standard Chartered Research
41
8/9/2019 Standard Chartered Africa - Resources for Growth July 6
http://slidepdf.com/reader/full/standard-chartered-africa-resources-for-growth-july-6 2/5
Standard Chartered Global Focus | 06 July 2010
Africa
Razia Khan, Global Head of Macroeconomic ResearchStandard Chartered Bank, United Kingdom+44 20 7885 6914, [email protected]
42
Africa’s more rapid growth recovery relative to
previous crises is rooted in several factors: (1) the
unprecedented counter-cyclical policy response to
the crisis; (2) unexpectedly large aid and
concessional flows, especially from the
international financial institutions (IFIs); (3) China’s
healthy growth and the resulting support to
commodity prices, which has helped to stem the
deterioration in FDI inflows; and (4) the resurgence
of risk appetite, which is partly responsible for the
post-crisis stabilisation in African FX rates. Along
with lower food and fuel prices, this also fed more
moderate inflation, helping to create an
environment more conducive to monetary easing.
There are risks, however. An initial global
consensus on the urgent need for counter-cyclical
policy has given way to a greater divergence of
opinion, as evidenced by the outcome of the latest
G20 meeting in June 2010. Following the euro-
area sovereign crisis, even frontier African
economies are being assessed in a different light,
with the market focus now shifting to the
sustainability of fiscal stimulus plans. Prior to the
depths of the financial-market crisis in Q4-2008,
African frontier markets, unlike more established
emerging markets, had been largely insulated from
global contagion when risk aversion peaked. This
has now changed. Recent market volatility
associated with the European crisis has made its
mark on smaller African frontier markets as well,
with most African currencies weakening in
response. Despite the fact that Africa’s trade with
Europe is dominated by the core economies rather
than the peripheral ones, the market reaction
reflects the view that Africa will be negatively
impacted by any renewed downturn in euro-area
growth prospects. This would be the case
especially if other developing regions, with which
Africa’s trade is increasing, were to slow as well –
with a knock-on impact on commodity prices.
Africa’s ambitious plans for eurobond issuance in
2010 may also need to be scaled back. Despite
generally favourable public debt ratios, most
frontier African economies are sub-investment
Resources for growth
Economic outlook
Fears that the global economic crisis would result
in a structural setback for Sub-Saharan Africa
have largely dissipated. Real GDP growth has
recovered from the weak but mostly positive levels
recorded in 2009, with rising expectations that
2011 may see a return to trend growth across
most Sub-Saharan African economies. This stands
in contrast to earlier economic slowdowns in
Africa, when weakness in the global economy
(Chart 1) had a marked lagged effect on African
economies. African economies entered this
downturn with strong growth momentum. Perhaps
as a result of this, the recovery from the crisis also
appears to have been more rapid.
Nonetheless, headwinds associated with
continuing global uncertainty persist. Africa is not
immune to the slowdown. With intra-regional trade
estimated to account for as little as 11% of total
trade (poor infrastructure is largely to blame),
Africa’s export growth remains highly correlated
with world growth (see ‘Charts of the Year –
Africa’, Chart 2, ‘Global outlook still matters’).
Rising South-South trade (‘Charts of the year –
Africa’, Chart 3) has cushioned African economies
from the brunt of the global slowdown. However,
more subdued growth in Asia and other emerging
regions would pose risks to the African outlook.
Table 1: Standard Chartered Research forecasts:Sub-Saharan Africa*
2009 2010 2011 2012
GDP (real % y/y) 1.2% 5.2% 6.0% 5.8%
IMF 4.8% 5.9% 5.5%
CPI (% y/y) 10.5% 8.8% 7.2% 7.6%
IMF 8.7% 7.2% 6.6%
Current accountbalance (% GDP)
-2.5% -0.2% 1.0% 1.7%
IMF 0.9% 0.1% 0.3%
* 2009 USD GDP, weighted total Sources: IMF, Standard Chartered Research
8/9/2019 Standard Chartered Africa - Resources for Growth July 6
http://slidepdf.com/reader/full/standard-chartered-africa-resources-for-growth-july-6 3/5
Standard Chartered Global Focus | 06 July 2010
Africa (cont)
43
its components shows that the increase in growthstemmed mostly from rising private consumption.
Especially during the oil boom years, net exports
made a negative contribution to overall Sub-
Saharan growth, although commodities were an
important contributor to fiscal resources in
resource-rich countries. (2) While there is evidence
that African oil exporters achieved higher growth
rates than oil importers, it is difficult to find a strong
correlation between terms-of-trade developments
and trend GDP growth in a region-wide context.
Commodities may have been important, but otherfactors have been bigger drivers of African growth.
(3) There is evidence that in absolute terms,
political change and a gradual move towards
greater political accountability – often via the
establishment of regular multi-party elections –
have had a greater impact on African growth than
rising commodity prices. The democracy dividend,
with consumption booms accompanying political
transitions in both South Africa and Nigeria (albeit
at different paces), has been clear. Together, the
two economies account for over half of Sub-Saharan African GDP. Although each economy is
resource-rich, the democratic transition appears to
have had a greater impact on GDP growth. (4)
Recent research has highlighted the success of
poverty alleviation efforts in Africa, demonstrating
that poverty rates may have fallen faster than
previously thought. For most African economies,
and for the region as a whole, charts show
Commodity price trends will remain an importantdeterminant of the availability of private external
financing for Africa (whether FDI or portfolio flows),
although the importance of resources in driving
actual economic growth in Sub-Saharan Africa has
traditionally been overplayed. A number of factors
suggest that commodities have played a limited
role in the outperformance of African economies
since 2001. (1) A breakdown of African growth into
grade. A further deterioration in global risk appetitemay negatively impact the cost of borrowing for
maiden issuers.
With Africa’s development partners now forced to
undergo more rapid fiscal consolidation, markets
are wary of the prospect of further cuts in foreign
aid budgets. The recent round of East African
budgets in June 2010 already showed signs of
reduced donor support to Tanzania and Uganda,
although in both cases, the causes have more to
do with the pace of reform in recipient economiesthan fiscal rebalancing in donor countries.
Nonetheless, with increasing talk that the previous
Gleneagles commitments on foreign assistance
may be de-emphasised as a consequence of the
global crisis, reductions in official development
assistance (ODA) are a threat to Africa’s medium-
term outlook. For now, IFI and multilateral
development bank lending to Africa continue to be
scaled up, led by the African Development Bank.
ing
Chart 2: African currencies succumb to global risk
aversion (versus USD, rebased)
0.8
1.0
1.2
1.4
1.6
1.8
2006 2007 2008 2009 2010
NGN UGX ZMK GHS
Chart 1: Global and Sub-Saharan African GDP
growth (%)
-2
0
2
4
6
8
10
1980 1985 1990 1995 2000 2005 2010
Sources: Reuters, Standard Chartered Research
World SSA
Sources:IMF WEO April 2010, Standard Chartered Research
8/9/2019 Standard Chartered Africa - Resources for Growth July 6
http://slidepdf.com/reader/full/standard-chartered-africa-resources-for-growth-july-6 4/5
Standard Chartered Global Focus | 06 July 2010
Africa (cont)
44
coverage – Botswana and South Africa –
experienced outright GDP contractions in 2009.
Botswana was hit particularly hard because of its
narrow economic base and the four-month closure
of its diamond mines in 2008-09. Even so, its
recovery from the crisis has not been dramatic. In
South Africa, positive growth is back following a
contraction of 1.8% last year. But the recovery is
mainly led by the external sectors of the economy,
and is already waning in the case of manufacturing
as restocking momentum subsides. Domestic
demand, the key driver of the pre-crisis upswing, is
off its lows but still subdued.
The picture of a gradual improvement in GDP
growth is consistent with trends in most of Africa’s
economies. Two of the economies under our
Elsewhere, a more mixed picture emerges.
Ethiopia, which is not resource-rich, has managed
to deliver near double-digit growth as reforms
continue. Kenyan growth had been negatively
impacted by both the global crisis and the post-
election political fallout, which has marred recovery
prospects. Nonetheless, leading indicators are
now improving, and Kenya is a key beneficiary of
more robust regional growth. Nigerian growth had
been encumbered by reduced oil earnings and a
domestic banking crisis, but is expected to post a
strong recovery thanks to pre-election spending
(the FY10 budget currently envisages a 48% y/y
spending increase). However, Ghana and Uganda
are expected to be the real emerging stars over
the medium term, with a step-change in GDP
growth expected in both economies as they
become oil producers for the first time. In other
countries, more gradual improvement is expected.
While post-crisis headline growth rates will still be
healthy, the increased casualisation of the formal-
sector labour force in mining economies such as
Zambia is a concern. Africa’s informal sector has
also been hit hard by the crisis, and it may be
some time before domestic demand recovers fully.
Financial issues
Although Nigeria was the only major African
economy to experience a banking crisis, credit
growth remains subdued region-wide. The reasons
vary. Rising NPLs associated with public-sectorarrears have taken their toll on banks in Ghana,
despite the injection of increased capital, in line
rising per-capita GDP growth over time are almost
the mirror image of falling poverty rates (‘African
poverty is falling… Much faster than you think!’,
Sala-i-Martin and Pinkovskiy, 2010). Falling
poverty levels are typically not associated with
commodity-driven growth. Resource-sector gains
tend not to be widespread and are frequently
subject to rents; as a result, a limited number of
people benefit the most. Conventional thinking
casts doubt on whether resource-fuelled growth
can reduce African poverty levels, so the recent
success of poverty alleviation (and GDP growth)
must be attributed to other factors.
What does all this mean in the context of the
pressures African economies face today? While
the recent global crisis may have stalled the
reduction in poverty levels, growth is back, and the
impact of the crisis appears to have been more
cyclical than structural. Although there are
important threats to the external outlook for African
economies, much of Africa’s growth in recent
years appears to have been internally generated.
Even faced with external headwinds, Africa’s
growth recovery should continue – although the
health of the global economy may well determine
the pace of that recovery.
Chart 3: Private-sector credit growth in South Africa
and Nigeria (% y/y)
-20
0
20
40
60
80
100
120
2007 2008 2009 2010
-5
0
5
10
15
20
25
30
Nigeria South Africa (RHS)
Sources: SARB, CBN, Standard Chartered Research
8/9/2019 Standard Chartered Africa - Resources for Growth July 6
http://slidepdf.com/reader/full/standard-chartered-africa-resources-for-growth-july-6 5/5
Standard Chartered Global Focus | 06 July 2010
Africa (con’d)
45
amid efforts to widen the tax base and extractmore revenue from the resource sector.
We expect a continuation of easy monetary policy.
Africa’s growth and inflation cycle are thought to
lag those of the rest of the world, and risks remain
tilted towards further easing rather than imminent
tightening. Fiscal policy will remain expansionary
with new regulations. In South Africa, highlyleveraged households, continuing job insecurity,
and greater caution among lenders have resulted
in weak annual credit growth, despite aggressive
easing by the South African Reserve Bank. Given
the slow response of credit growth to monetary
easing in Africa, doubts about the transmission
mechanism persist. If anything, this is an argument
for policy to remain accommodative for longer.
Politics
Political risk has taken a backseat to economic
factors in determining recent growth. However, the
economic crisis has in many cases exacerbated
pre-existing fault lines. Of particular interest in the
months ahead will be the 4 August referendum on
constitutional change in Kenya, seen as a key
litmus test for the holding of peaceful elections in
2012, and pre-election momentum in Nigeria.
Nigeria must hold elections in 2011, but the issue
of whether North-South rotation will be adhered to
within the ruling People’s Democratic Party
remains unresolved.
Policy
Table 2: Ranking of Sub-Saharan African economies by GDP
GDP (PPP)GDP GDP (PPP) GDP GDP (PPP)
Economy (2009 estimates)USD bn
GDP (PPP) per capitaper capita ranking ranking
ranking
South Africa 287.2 505.2 10,244 1 1 5
Nigeria 173.4 341.6 2,249 2 2 8
Angola 68.8 105.9 6,117 3 3 6
Kenya 32.7 62.1 1,730 4 5 11
Ethiopia 32.3 79.0 954 5 4 17
Côte d'Ivoire 22.5 35.8 1,674 6 10 12
Tanzania 22.3 57.4 1,416 7 6 15
Cameroon 22.2 42.8 2,147 8 7 9
Uganda 15.7 39.7 1,196 9 8 16
Ghana 15.5 35.8 1,551 10 9 13
Zambia 13.0 18.5 1,542 11 18 14
Senegal 12.7 22.3 1,743 12 13 10
Equatorial Guinea 12.2 23.7 18,600 13 12 1
Botswana 11.6 25.4 13,992 14 11 3
Democratic Republic of Congo 11.1 21.5 332 15 14 20
Gabon 11.0 21.1 14,318 16 15 2
Mozambique 9.8 19.8 934 17 16 18
Republic of Congo 9.5 15.6 4,146 18 20 7
Mauritius 8.8 16.1 12,527 19 19 4
Madagascar 8.6 19.4 932 20 17 19
Sources: Standard Chartered Research, IMF WEO April 2010