GROWTH: Way down south

Africa has emerged as a positive growth story, and with a few exceptions should remain so

  • By Thierry Ogier
  • 09 Oct 2013
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Once again Aliko Dangote has managed to grab the headlines. In early September, signs of the end of the US quantitative easing and the prospects of declining commodity prices because of China’s slowdown were battering the financial markets in emerging economies – and the African billionaire unveiled plans to launch an oil refinery in his native Nigeria by 2016. The ink on his $3.3 billion loan contract with a group of 10 banks led by Standard Chartered and Nigeria’s Guaranteed Trust Bank was not yet dry when he pledged: “For the first time in our lifetime, we’ll see Nigeria exporting petroleum products.” If all goes according to plan, one of the main paradoxes of the Nigerian economy will be addressed: the west African country is a large producer of crude oil, but it has to import 80% of the fuel it consumes.

The Nigerian magnate’s initiative is an encouraging sign. African financiers have increasingly been investing in the continent itself to strengthen its growth potential. If the process is managed successfully, Africa may be able to tackle some of its recurrent woes and strengthen its own growth dynamics. Dangote himself intends to expand his cement activities in half a dozen African countries, where he is due to invest some $5 billion. The Nigeria-based United Bank for Africa, which is present in 18 countries, already has 20% of its revenues coming from the rest of Africa, and it aims to reach 50% in coming years. More broadly, the World Bank expects that the stock of capital in sub-Saharan Africa will more than double between 2010, when it was $11 trillion, to $23.3 trillion in 2030.

Africa has emerged as a positive economic growth story in recent years. And it should remain so, in spite of the shaky global environment. True, there is one big, notable exception: South Africa, the continent’s largest economy, which accounts for about a third of sub-Saharan Africa’s gross domestic product. Nigeria, Africa’s number two, also has issues, but in spite of political tensions, both economies are reasonably well managed. Renewed tensions in Syria and the Middle East are expected to favour oil exporters, at least in the short term. On the downside, instability in the aftermath of the Arab Spring has weighed on the performance of several north African countries, and radical Islamic groups have also been active in some sub-Saharan countries, such as Mali and Nigeria. An international

military intervention forced them out of power in the northern half of Mali, while the Boko Haram militant Islamist group is still launching deadly attacks in parts of Nigeria in order to overthrow the government. In Kenya, at least 67 people were killed and more than 60 were missing after an attack over a shopping mall in Nairobi by Somali Islamist group al-Shabab.

Nevertheless, the region as a whole is still expected to experience strong growth of around 5% this year. “This is reliant on the pace of global economic growth and in particular on the performance of several emerging economies, which are major importers of African commodities and key investors in the region,” says the African Development Bank (AfDB). It estimates a 4.8% GDP growth for this year in the whole of Africa and a further expansion of 5.3% in 2014. Last year, African growth hit a strong 6.6%, thanks to an exceptional rebound in Libya (without Libya, the AfDB says growth averaged to 4.2%, mainly due to the eurozone crisis).


China’s appetite during its period of economic rebalancing will have an impact on the region’s performance. But the current assumption is that the slowdown will not do much harm. “We take the view that China is recovering, and even China growing at

7% – a rate which suggests a doubling of economy size each decade – would be positive for commodity demand,” says Razia Khan, head of Africa research at Standard Chartered Bank in London. Even though some emerging markets are already experiencing a slowdown and exchange rate volatility in the wake of the expected end of the quantitative easing in the US, Africa may still deserve its crown as a growth champion in the end. “It’s a reasonable story,” says Khan. “We are concerned about South Africa, but the rest of sub-Saharan Africa has surprised to the upside.”

Last May, the International Monetary Fund forecast a 5.5% GDP growth in sub-Saharan Africa this year and next year, after achieving 5% in 2012. Moreover, the fund’s Africa director Antoinette Sayeh adds that “possible adverse shocks would likely not have a large effect on the region’s overall performance.”

The largest economies in the region are also the ones that have the most sophisticated capital markets and therefore those that are the most exposed to the global turmoil. “The effect of recent indications of ‘tapering’ of the Fed’s asset purchase programme will be negative for Africa, but it will not be as negative as we have seen in countries with large current account deficits such as India and Turkey, where growth in both cases has weakened recently anyhow (in India from above 9% to 5% and in Turkey from 4.5% to about 1.5% this year),” says George Abed, senior counsellor and director for Africa and the Middle East at the International Institute of Finance.

South Africa has been the worst hit. “It is suffering from sluggish growth and is only slowly recovering from the 2008–2009 financial crisis,” says Abed. The IIF forecasts GDP growth of “barely 3%” this year against a background of social unrest. The South African economy has been heavily exposed to the latest emerging market turmoil. “It is fully integrated into the global financial system, it attracts large amounts of portfolio flows – bonds and equities – and these tend to fluctuate more than FDI... South Africa is one of the most liquid portfolio investment markets, and it is the first one to suffer outflows when there is an upward shift in global interest rates,” says Abed. Moreover, its macroeconomic indicators are in a bad shape. Its twin deficits look increasingly ugly. The current account gap reached 6.5% of GDP in the second quarter of 2013, while the fiscal deficit is close to 5% of GDP. “Inflation in South Africa is near the upper limit of the target [the consumer price index reached 6.4% in August], but the authorities are unable to raise rates because of the sluggish economy. So they are in a challenging situation. Furthermore, the currency is weak, although the worst may be over,” says Abed.

The China slowdown and the fall in commodity prices have also taken their toll. “The country has been suffering from the impact of the end of the commodity price boom, and from the fact that the government does not seem to be willing to make structural reforms, such as labour market liberalization,” says Peter Worthington, Absa Capital economist in Johannesburg. State inefficiency is also an issue. “We have a state that takes a large share of the country’s economic resources and wastes it,” he says.


On the other hand, things are not that bad for Nigeria and Kenya, or other fast-growing countries like Angola and Tanzania. “We expect sub-Saharan Africa to do better, on average, than some of the other emerging markets because of the particular factors that have carried growth in Africa over the past decade or even longer,” Abed says. “They are also less exposed to the cross currents of capital flows, especially portfolio capital flows which tend to be volatile and are subject to shifts in market sentiment. Africa, in contrast, has been a recipient mostly of FDI, which is more stable and longer term... The African economies will continue to attract FDI, as they will also continue to grow on the back of their own internal strength.” This would be thanks to natural resources and their expanding domestic market, especially in Nigeria, Kenya and some resource-based countries such as Angola, Mozambique and others.

Nevertheless, some African economies are expected to be negatively impacted by a decline in non-oil commodity prices as a result of the emerging markets slowdown. But Standard Chartered’s Khan is adamant: “The view that commodity prices are the main drivers [of growth in the region] is mistaken.” Post-conflict Ivory Coast provides another encouraging sign, with very strong growth indicators of around 8%, she points out.

It is in the bond market that African countries will feel the most negative impact. “It is an uphill path. There are headwinds facing the African economies as some countries enter the global capital markets. The rates they have to pay now are higher than those they paid, say, two years ago,” Abed says. “Rwanda came in a couple of years ago for less than 6%. Those rates will not be available, not for a while anyhow, if they seek to borrow externally.” All dollar denominated transactions have been affected. “It had had some impact in Africa, as some African countries have been dipping their toes into capital markets. Nigeria and Ghana issued bonds earlier this year. Tanzania and Kenya hope to issue a total of $2.5 billion this year. This will affect the rates at which these countries will borrow, and it will also affect the market value of the assets or the debt they already issued,” he warns.

As a matter of fact, Africa is not totally insulated from the financial instability that has occurred since May when the US Federal Reserve signalled a monetary policy change. “Rates have risen everywhere, the yield curve has shifted upwards and this does affect developing African countries in some way, but somewhat less so than in countries that are more exposed, such as Brazil, India or Turkey,” says Abed. The Fed defied market expectations and did not taper in September, but uncertainty over the timing remains. Progress has been made on several fronts across Africa, including policymaking in South Africa and Nigeria. But economic diversification, such as the one Dangote has been encouraging at home, still has a long way to go.

  • By Thierry Ogier
  • 09 Oct 2013

All International Bonds

Rank Lead Manager Amount $bn No of issues Share %
  • Last updated
  • Today
1 JPMorgan 146.87 505 10.08%
2 BofA Securities 118.80 407 8.15%
3 Citi 111.85 400 7.68%
4 Goldman Sachs 88.56 255 6.08%
5 Barclays 76.05 307 5.22%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $bn No of issues Share %
  • Last updated
  • Today
1 Deutsche Bank 8.33 35 7.21%
2 UniCredit 7.05 32 6.10%
3 BofA Securities 7.00 27 6.06%
4 BNP Paribas 5.58 37 4.83%
5 Citi 5.31 23 4.60%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $bn No of issues Share %
  • Last updated
  • Today
1 Credit Suisse 3.10 7 10.46%
2 Morgan Stanley 2.55 14 8.61%
3 JPMorgan 2.53 18 8.54%
4 Goldman Sachs 2.43 15 8.19%
5 Citi 2.07 16 6.98%