Risks and Opportunities in the Emerging Economic ... June 2008 • Park Hyatt • Johannesburg,...

12 June 2008 • Park Hyatt • Johannesburg, South Africa

Risks and Opportunities in theEmerging Economic Landscape of Africa

Karanta KalleyRegional Managing Director, Africa Group

Global Insight

Copyright © 2008 Global Insight, Inc.

Presentation Outline

• The Emerging Economic Landscape– Growth– Inflation– External Environment

• Improved terms of trade• Debt relief• FDI

– Political Environment

• Risks– Economic– Political

• Opportunities


East Africa Staged the Best Performance in 2007

Regional Growth Performance

0

2

4

6

8

2005 2006 2007

Year

Gro

wth

(%)

East Africa Southern Africa West AfricaNorth Africa Central Africa Africa


Real GDP Growth hit a 30-year high in 2004 and remained above 5% in through 2007

Sub-Saharan Africa: Real GDP Growth

02

46

810

12

2003 2004 2005 2006 2007 2008

Year

Perc

ent C

hang

e (%

)

Sub-Saharan Africa Oil Exporters Non-oil Exporters


Growth Drivers Include:

• Continued surge in oil and some non-oil commodity prices

• Growth in foreign direct investment

– Particularly in the energy sector

• Angola, Nigeria and the rest of the Gulf of Guinea

• Increased economic relations with China and India

• Expansion in the construction sector

• Improved performance in agriculture


CPI Inflation Has Averaged in Single Digits Since 2004

Sub-Saharan Africa: Consumer Price Inflation

0

4

8

12

16

20

24

2003 2004 2005 2006 2007

Year

CPI

(%)



Terms of Trade Have Improved for Both Oil and Non-Oil Exporters

Sub-Saharan Africa: Terms of Trade

0

40

80

120

160

200

2003 2004 2005 2006 2007

Year

Term

s of

Tra

de (2

000

=100

)



Remittances Rose Sharply in 2006• Sub-Saharan Africa received US$20 billion (UN)

• Surge in growth was largely the result of:– Globalization spurred by economic liberalization

– Reduction in average transmission costs

• Boosted migrants’ disposable incomes and their incentive to remit

• Macro level: remittances are more stable than FDI, official aid or export revenues

• Remittances have a multiplier effect through increased household consumption and investment in human capital, such as education, in healthcare and better nutrition

• Main role: Stimulate consumption and investment and contribute to poverty alleviation


External Debt Continued to Decline in 2007 with Nineteen Countries Having Received Substantial Debt Relief

Sub-Saharan Africa: External Debt (% of GDP)

0

10

20

30

40

50

60

2003 2004 2005 2006 2007

Year

Deb

t as

% o

f GD

P



Post-Completion-Point Countries include:

• Benin• Rwanda• Madagascar• São Tomé &

Príncipe• Burkina Faso• Malawi• Senegal• Cameroon• Mali

• Sierra Leone• Ethiopia• Mauritania• Tanzania• The Gambia• Mozambique• Uganda• Ghana• Zambia• Niger


The Political Environment Has Also Improved

• There are fewer wars than not too long ago

• Dictators are fewer on the ground

• There are also more democratic transitions\elections

• More countries are making real efforts at transparency and good governance


Uncertainties at the Global Level Exist• Slowdown in China’s economy

– Overheating of China's economy leads to harsh measures to tighten credit, resulting in a hard landing of domestic demand

• Commodity price slowdown

– Rising global risk spreads mean that credit conditions for emerging markets are becoming tighter

• Financing of current account deficit

– Exceptionally high oil prices• Dampening global growth

• Adding to current account deficit through more expensive imports and less exports

• Dampening domestic economy through higher prices

– Geopolitical risks • Military conflicts


...But there are Risks at the Regional Level As Well• Risks:

– Poor infrastructure– Growth, though increasing, still remains insufficient– Excessive reliance on primary commodity exports– External debt still remains high and private capital flows

are insufficient– Disbursements of external development financing fall

short of commitments– Domestic savings as a percent of GDP remains low– Political risk, though declining, remains high– HIV-Aids, both an immediate crisis and a long-term

systemic challenge with profound consequences for the region


Short- to Medium-Term Potential Lies in the Region’s ‘Natural Comparative Advantage’

• Agriculture

• Minerals

• Energy

• Forestry

• Fishing

• Tourism


There are Signs that Industrial Manufacturing Will Pick Up:

• Cost efficiency and proximity to raw material may outweigh the benefits of cheaper labour

• Manufacturing:

• Machinery and equipment

• To support infrastructure development

• Building materials


Infrastructure Will Continue to Provide Opportunities Going Forward

• Infrastructure Construction

• Electricity

• Gas

• Water (water purification)

• Transportation (rail, road and ports)

• Storage

• Telecoms


Final Remarks

• Significant downside risks remain

• However, some major developments point to a positive direction

• A favorable global environment, prudent economic policies, good governance and political stability will bode well for socio-economic development, going forward

• We are beginning to see some light at the end of the tunnel. If Africa and its partners do not take constructive advantage of this situation, the light we see will just be another flicker in the tunnel


References

• Africa Quarterly Outlook, Global Insight Inc. March 2008

• Africa Risk Quarterly, Global Insight Inc. March 2008

• Africa Sovereign Risk Quarterly, Global Insight Inc. March 2008

• IMF World Economic Outlook, October 2007

• A Resource-based African Development Strategy, AFDB, March 2008

• African Business, March 2008

12 June 2008 • Park Hyatt • Johannesburg, South Africa

Thank You!Karanta Kalley

Regional Managing Director, Africa GroupGlobal Insight

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