Business & Economy

African growth dims, but ignore region at your peril

Just a year ago, Africa was touted as the next investment El Dorado. Two decades of record growth, a rapidly urbanising population of 1.1billion, rising incomes and vast untapped mineral reserves would lead to the creation of a broad middle class, the theory went.
General Electric and Marriott International announced African expansion plans, while buyout firms Carlyle Group and Helios Investment Partners set up funds targeting the continent. Africa attracted $128 bn in foreign direct investment last year, up from $52.6 bn in 2013, according to accounting firm EY.
Now a slowdown in China, a commodity price rout and a power shortfall are separating the losers from the winners. The MSCI EFM Africa share index has dipped 18 percent this year, five percentage points more than a gauge of stocks in 24 frontier markets. Of 24 African currencies tracked by Bloomberg, 22 have weakened against the dollar.
To Marlon Chigwende, the sub-Saharan Africa MD for Carlyle, the message is simple: Africa is not a country.
‘There are individual forces at work within each of the 55 countries that make up Africa,” he says. “There will continue to be investment opportunities,’ he told Bloomberg.
The combined economies of sub-Saharan Africa should expand 4.4 percent this year, the IMF said in July. That is one percentage point less than predicted a year earlier and below the 5.4 percent average of the past decade.
The data is driven largely by Nigeria and South Africa, which together account for 55 percent of the 48 sub-Saharan African nations’ gross domestic product. Growth in Nigeria slumped to 2.4 percent in the second quarter as oil prices dived. South Africa’s economy contracted by an annualised 1.3 percent as power shortages curbed output.
‘It’s about the weakness of the giants,’ says Akinwumi Adesina, the president of the African Development Bank (AfDB). ‘The countries Africa exports to have slowed down significantly,’ he adds.
Bright spots remain: the Democratic Republic of the Congo is expected to be Africa’s top performer this year, forecast by the IMF to grow by 9.2 percent, followed by Ethiopia, with a projected 8 percent.
The commodities rout has hit oil producers such as Angola and Ghana, as well as Zambia, Africa’s second-biggest copper producer. Brent crude has plummeted 51 percent over the past 12 months, while copper has slumped 22 percent.
‘Investors that look for risk-adjusted returns will continue to look at the continent, but they’ll have to temper their expectations,’ says John Mackie, head of Stanlib Asset Management’s Pan-African Investment portfolios. The prospect of US interest-rate increases and China’s failure to curb its stock slump are having ‘a massive impact’.
Mark Mobius of Franklin Templeton Investments, who has been investing in emerging markets for more than four decades, remains optimistic.
‘The growth scenario is still excellent,’ he says.
‘We do not want to scale back our investments. The problems are here to stay but they pale beside the opportunities.’
General Electric, Marriott, Carlyle and Helios all say that they will not curtail their expansions into Africa.
Shoprite is among companies benefiting from a consumer spending surge. Its supermarket sales outside SA grew 13.5 percent in the year ended June.
‘There are countries that continue to do well,’ Shoprite chairman Christo Wiese says. ‘Taking a medium-term view, you ignore Africa at your peril.’

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