Has Africa oversold it`s growth story.
Just a year ago, Africa was touted as the next investment El Dorado. Two decades of record growth, a rapidly urbanizing population of 1.1 billion, rising incomes and vast untapped mineral reserves would lead to the creation of a broad middle class, but Now a slowdown in China, Africa’s largest trading partner, a commodity price rout and a power shortfall are separating the losers from the winners.
Now a slowdown in China, Africa’s largest trading partner, a commodity price rout and a power shortfall are separating the losers from the winners. The MSCI EFM Africa Index of shares has dipped 18% this year, five percentage points more than a gauge of stocks across 24 frontier markets. Twenty-two of 24 African currencies tracked by Bloomberg have lost ground against the dollar as the Federal Reserve prepares to raise rates.
To Marlon Chigwende, sub-Saharan Africa managing director for Carlyle Group LP, the world’s second-largest private-equity firm, 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 said. “There will continue to be investment opportunities.’’
The combined economies of sub-Saharan Africa should expand 4.4% this year, the International Monetary Fund said in July. That’s one percentage point less than predicted a year earlier and below the 5.4% average of the last decade. The peak was 7.1% in 2007.
The data is driven largely by Nigeria and South Africa, which together account for 55% of the 48 sub-Saharan African nations’ gross domestic product. A collapse in oil prices saw growth in Nigeria slump to 2.4% in the second quarter, the slowest pace in at least five years. South Africa’s economy contracted by an annualized 1.3% as power shortages curbed output.
“It’s about the weakness of the giants,’’ said Akinwumi Adesina, president of the African Development Bank.
Bright spots remain: Democratic Republic of Congo is expected to be Africa’s top performer this year, forecast by the IMF to grow by 9.2%, followed by Ethiopia, with a projected expansion of 8%. Congo is emerging from a decade of civil war, while Ethiopia is opening up to foreign investment and improving its transport links.
Besides Nigeria, the commodities rout has hit oil producers such as Angola and Ghana, as well as Zambia, the continent’s second-biggest copper producer. The price of Brent crude has plummeted 51% over the past 12 months, while copper has slumped 22% on the London Metal Exchange.
Shoprite Holdings Ltd., Africa’s largest retailer, is among companies benefiting from a consumer spending surge: Its supermarket sales outside South Africa, its home base, grew 13.5% in the year through June. The company has outlets in 15 African nations, including the Democratic Republic of Congo, Angola, Nigeria and Uganda.
“There are countries that continue to do well,” Christo Wiese, Shoprite’s billionaire chairman, said in an interview. “Taking a medium-term view, you ignore Africa at your peril.”
Most African countries are net commodity importers and should benefit from lower prices, according to Mark Bohlund, an economist with Bloomberg Intelligence in London. Ethiopia and Kenya, which are making progress on building infrastructure, stand to gain while exporters Angola and Nigeria will grow less, he said.
Topping the list of Africa’s infrastructure concerns is a power shortfall. An estimated 600 million Africans lack access to electricity. While about 95 energy projects worth more than $50 million were being built in Africa last year, most are nowhere near completion, according to a study by Deloitte LLP.
“Africa should’ve been growing at 7% or 8% if it had sorted its power out a decade ago,” said David Cowan, an Africa economist in London at Citigroup Inc.