The African risk / reward

AFRICA RESOURCESAFRICA RESOURCESINVESTMENT CONGRESS

The African risk / reward Matthew Searle – Business Monitor International

IRONMONGERS’ HALL, CITY OF LONDON ● TUESDAY-WEDNESDAY, 14-15 JUN 2011www.ObjectiveCapitalConferences.com

Business Monitor International

Africa’s Growth Boom: Key Drivers

And Risks

M tth S l S b S h Af i A l tMatthew Searle, Sub‐Sahara Africa AnalystBusiness Monitor International


SSA As A Region Will Be Top PerformerGDP Growth Rates, % chg y‐o‐y

10.0

15.0

5.0

-5.0

.02002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

-10.0SSA Asia Developed World Emerging Europe Latin America MENA

3

Source: Central Banks, Statistical Agencies, BMI Forecasts


if we exclude South Africa…if we exclude South Africa…15.0

…SSA (ex SA) will be fastest growing region in the world after 2013

5 0

10.0region in the world after 2013

.0

5.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

-5.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Resilient during the worst of the downturn resulting from GFC

-10.0SSA (ex South Africa) Asia Developed World Emerging Europe Latin America MENA

resulting from GFC

4

Source: Central Banks, Statistical Agencies, BMI Forecasts


8 Of 20 Fastest Growing Economies8 Of 20 Fastest Growing Economies In The World In 2011‐2015

12 0

8.0

10.0

12.0

Average Annual Real GDP Growth % chg y‐o‐y, 2011‐2015

4.0

6.0

.0

2.0

5

Source: BMI Forecasts


Investor Interest: Eurobond Yields HeadingInvestor Interest: Eurobond Yields Heading Lower25

I t Af i t i ki t B il th V l

15

20Investors see African countries as more akin to Brazil than Venezuela…

101000 basis 250‐300 basis

points

0

5

Ghana 2017 Brazil 2017 Gabon 2017 Venezula 2016

6

Source: Bloomberg


FDI On The UpFDI On The Up

20000FDI Into Africa Has Been On The Rise

15000

FDI Into Africa Has Been On The Rise Since 2000.

10000

US$mn

5000

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

7

Source: IMF


What will drive this growth?

1 Resources

What will drive this growth?

1. Resources

2. Agriculture

3. The Consumer –

8


Driver 1: ResourcesDriver 1: ResourcesResource Current Producers Growth Prospects In…

Platinum & Palladium South Africa, Zimbabwe Zimbabwe

Diamonds Botswana, Namibia, South Africa Zimbabwe

Gold South Africa, Ghana, Mali Côte d’Ivoire, DRC, Tanzania

Copper Zambia Zambia, Botswana, DRC

Coal South Africa Mozambique, South Africa

Iron Ore South Africa Guinea Sierra LeoneIron Ore South Africa Guinea, Sierra Leone

Rare Earth Minerals ‐‐‐‐‐‐‐ DRC, Mozambique

Nigeria, Angola, Sudan, Gabon, Ghana Uganda Tanzania?

Oil Equatorial Guinea, Côte d'Ivoire, Republic of Congo, Cameroon

Ghana, Uganda, Tanzania?,Mozambique?

Gas Cameroon Tanzania, Mozambique

9


Driver 2: AgricultureDriver 2: AgricultureIs already an important part of many African economies:

50

60

Agriculture As % of GDP In Selected SSA Countries

30

40

10

20

0

Ethiopia Nigeria Ghana Kenya Mozambique Tanzania Zambia

10

Source: Central Banks, Statistical Agencies


Agriculture contAgriculture cont.

• Informal subsistence farming is a large part of this• Informal subsistence farming is a large part of this

• Economic growth will be recorded merely by incorporating data from informal farming activities into GDP accounting

• By including in the formal economy, should improve access to bank finance

Thi l ith i d f i i t i t t ill d i• This, along with increased foreign investor interest will drive productivity gains as farmers use better inputs, technology and methods

11


Agriculture contAgriculture cont.

Case Study:Case Study:

In Nigeria, the agricultural sector:

• Employs 58% of workforce (2007)p y ( )

• Accounts for > 40% of the economy

• Uses <1% of bank credit

• Large productivity gains to be reaped

12


Driver 3: Consumption

Africa’s younger, larger, richer population will demand more goods and services:

4000421200

2000

2500

3000

3500

4000

40

41

42

600

800

1000

1200

500

1000

1500

2000

37

38

39

200

400

600

0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

SSA GDP Per Capita, US$

37

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Total Population mn LHS % Of Population Aged Btwn 15‐39

13Source: World Bank; Central Banks, Statistical Agencies, BMI Forecasts


Consumption contConsumption cont.

• Roads and rail will improve distribution networks taking goodsRoads and rail will improve distribution networks taking goods and services to far‐flung consumers more efficiently

• Urbanisation

• Proliferation of telecommunications – mobile and internet – will connect more people to suppliers of goods and services

• Growth in mobile banking/conventional banking services will• Growth in mobile banking/conventional banking services will facilitate transactions and help circulate cash around the economy

14


Consumption contConsumption cont.Mobile banking stands to be a massive boost to consumption:

Safaricom’s M‐PESA mobile banking service transferred US$570mnin Mar‐11in Mar 11.

US$9.9bn since 2007

15Source: Safaricom


Let’s not get too carried away…

16Source: BMI


K W k 1 P li i l Ri kKey Weakness 1: Political RiskBusiness Monitor Political Risk Ratings

60

70

80

Business Monitor Political Risk Ratings

40

50

60

10

20

30

0

Total Policy Making Process Security/External Threats

Policy Continuity Social Stability

SSA Average Global Average

17



12

14

60

70

80


6

8

10

40

50

60

2

4

10

20

30

00



SSA Average Global Average Difference

18Source: BMI


Social Stability: Food Price InflationSocial Stability: Food Price Inflation

High Weightings Of Food In The CPIFAO F d P i I d

Uganda

Cote d'Ivoire

Botswana

High Weightings Of Food In The CPI Basket = Risk

200.0

250.0

FAO Food Price Index

Ghana

Cameroon

KenyaZimbabwe

Uganda

100.0

150.0

Ethiopia

Senegal

Nigeria

Zambia

Tanzania

0 0

50.0

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

Mozambique

Ethiopia0.0

Jan-

90Ja

n-91

Jan-

92Ja

n-93

Jan-

94Ja

n-95

Jan-

96Ja

n-97

Jan-

98Ja

n-99

Jan-

00Ja

n-01

Jan-

02Ja

n-03

Jan-

04Ja

n-05

Jan-

06Ja

n-07

Jan-

08Ja

n-09

Jan-

10Ja

n-11

19Source: FAO, National Statistical Agencies


Social Stability: DemographicsSocial Stability: Demographics

41

42

1000

1200

Total Population mn LHS % Of Population Aged Btwn 15‐39 RHS

39

40

41

600

800

37

38

39

200

400

• Employment needs to be created.

372000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

• Price growth needs to be contained through prudent policy

• Broadly, countries’ citizens will need to participate in growth

20Source: World Bank; BMI Forecasts



12

14

60

70

80


6

8

10

40

50

60

2

4

10

20

30

00



SSA Average Global Average Difference

21Source: BMI


Policy ContinuityPolicy Continuity

• DRC – Expropriation of First Quantum’s Frontier Mine in 2010

• Zimbabwe – Uncertain Indigenisation PolicyZimbabwe Uncertain Indigenisation Policy

• South Africa – Nationalisation is espoused by some radical yet powerful elements

• Guinea, Namibia, Sierra Leone – Proposals to up government stakes in mining sector

• Tanzania Supertax on mining profits• Tanzania – Supertax on mining profits

22


Key Weakness 2: InfrastructureKey Weakness 2: Infrastructure Deficit

World Bank estimates that Africa needs US$93bn pa to meet its infrastructure requirements:

• Additional 7 000 MW of power generation• Additional 7,000 MW of power generation

• 22,000 MW of transmission lines

• Roads connecting capitals, ports, border crossingsRoads connecting capitals, ports, border crossings

• Roads connecting rural agricultural lands

• Water, sanitation, housing

• Telecommunications

23Source: World Bank


BMI Infrastructure Key Projects DatabaseBMI Infrastructure Key Projects Database

310 projects – US$300bn worth

Airports

Housing2%Oil & Gas Pipelines

3%Water7%

Upcoming, Ongoing Or Recently Completed Infra Projects In SSA

10% 3%

Ports9%Roads & Bridges

26%

7%

Power Plants & transmission grids

33%

Rail10%

33%

24Source: BMI


AFRICAAFRICA• 53 Countries

• Over 3000 languages

• Different Cultures And Customs

• Varying legal systems and• Varying legal systems and enforcement thereof

• Varying degrees of political and economic stability

25


Take‐Aways• Countries in Africa Are Set To Grow Robustly• Countries in Africa Are Set To Grow Robustly

• Investor interest is picking up in Africa

• Resources extraction agriculture and consumer• Resources extraction, agriculture and consumer‐facing industries will drive this growth

• Political risk remains pertinent – most pressinglyPolitical risk remains pertinent most pressingly in social stability and policy continuity

• Infrastructure deficit is a constraint although gsteps are being taken to address this

26


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Appendix: Real GDP GrowthAppendix: Real GDP Growth2007 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f

Angola 19.8 14.8 2.6 3.4 7.6 7.9 6.3 9.7 10.4Botswana 4.8 2.9 ‐4.9 7.2 5.1 5.0 5.0 4.7 4.5Botswana 4.8 2.9 4.9 7.2 5.1 5.0 5.0 4.7 4.5Cameroon 3.5 2.9 2.0 3.2 3.7 5.7 5.2 3.9 3.8

DRC 6.3 6.3 2.7 5.8 7.0 7.3 7.2 7.2 7.0Ethiopia 11.5 11.6 8.6 8.7 8.5 7.6 7.0 6.5 5.5Gabon 5.5 2.3 ‐1.0 4.0 4.5 5.1 5.3 4.0 3.6Ghana 6.5 8.4 4.0 7.7 14.0 7.9 7.6 13.1 9.7Kenya 7.0 1.6 2.5 5.2 5.2 6.3 5.9 5.4 5.2

Mauritius 5.5 5.1 3.1 4.1 5.0 5.1 5.3 5.4 4.8Mozambique 7.3 6.7 6.4 8.0 7.5 7.5 8.0 7.5 7.4N ibi 5 4 3 3 0 9 3 8 4 5 5 2 5 8 5 7 5 0Namibia 5.4 3.3 ‐0.9 3.8 4.5 5.2 5.8 5.7 5.0Nigeria 6.5 5.9 6.9 7.9 7.8 7.6 7.8 7.4 7.9Rwanda 7.8 11.6 6.0 6.1 6.8 7.7 7.6 6.9 6.8

South Africa 5.6 3.6 ‐1.7 2.8 3.5 4.0 4.3 4.2 4.0Tanzania 7 1 7 4 6 0 6 4 6 2 6 5 6 3 6 2 6 2Tanzania 7.1 7.4 6.0 6.4 6.2 6.5 6.3 6.2 6.2Uganda 8.1 10.4 5.3 6.9 6.8 9.3 9.7 8.6 8.5Zambia 6.2 6.0 6.3 6.8 7.3 7.2 6.1 6.1 6.0

Zimbabwe ‐6.9 ‐14.1 5.7 8.1 7.1 7.4 8.0 7.2 6.7

28Source: BMI

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