An analysis of Africa’s prospects in the second half of 2015
In the first part of 2015, the global economy faced a series of key issues that are likely to remain relevant going forward. According to the IMF, the global economy is expected to grow at just 3.5% in 2015. The developing countries according to the World Bank are expected to grow at 4.4% with a highly likelihood of above 5% growth. Earlier this year, PwC issued a report that suggested that: United States economy will grow at the fastest rate since 2005, economic growth in China to slow down, Quantitative Easing in the Eurozone as a result of low inflation, India to come back to growth, and South Saharan economies to be the key drivers of the global economy. The report also suggested that the key challenges during the year would be: geopolitical issues in Ukraine, Low oil prices, and a hard falling in China. In this article, I will explore the key macro-economic themes that we have experienced in the first half of the year and what that means for African countries.
Low Oil Prices
In 2015, oil prices fell from the highs of $100s to the lows of $40 per barrel. As a result, the reaction to this in African countries has been quite positive. This is because of the fact that only a few countries rely on oil and gas in Africa. Countries such as Nigeria and Morocco have their GDPs pegged on the oil prices. On the other hand, countries such as Uganda, Zambia, South Sudan, and Kenya are net importers of oil. As a result, a decline in oil prices would lead to significant growth in the economies. In the past few months, the oil prices have been staggering at between $55 and $62 a barrel which seems as the new normal. In addition, oil experts including Al Waleed, the chair of Kingdom Investments have pointed that oil will not touch $80 in future. For net importers, this is new savings in the economy while exporters such as Nigeria have been hit hard.
Terrorism is a major issue in African countries. This year alone, Boko Haram and Alshaabab have killed more than 400 people in various attacks. The most recent attack was in Tunisia. These attacks have had a toil to the African countries with the West issuing travel advisories in the countries. This has led to a crippled tourism environment and a reduced investor conference. The governments have invested heavily in the security sector. In Kenya, more than 1/3 of the national budget went to security. In Nigeria, the new president was elected on a promise to stop the killings. Countries that depend on tourism has been hit hard. In Kenya, hotels in the Coast have been closed and thousands of employees sent home. In terms of FDI, African countries are actually doing well despite the terror threat. According to the FDI intelligence, African FDI investments grew by 65% in 2014. The leading countries in investment are: Egypt ($18 billion), Angola ($16 billion), Nigeria ($11 billion), Mozambique ($9 billion), and Morocco ($5 billion).
The Eurozone area started the year on a negative step because of the humongous Greece crisis. The crisis has subjected the Euro area to uncertainty especially with the No vote that was cast on Sunday. There are tensions on whether the Euro can withstand a Greece exit. The Euro has weakened against major currency pairs. While these issues have happened in the West, the fact is that many African countries have been affected. Companies in the Euro area are some of the biggest investors in African countries. The continued weakness in the Euro could lead to significant spill over effects in the African countries. After the Eurozone crisis, the region will still be unstable following the announcement by David Cameron that the country will have a referendum to determine its future in the Euro.
Growth in US and Slowdown in China
2015, has been the year of the United States which is currently doing extremely well in terms of employment and growth in all sectors. On the other hand, China, one of the biggest investor in Africa is facing serious economic challenges. Many analysts actually expect the Chinese bubble to burst in 2015. The Chinese economy has been on a bull run, outperforming most of the peers in the emerging markets. A continued weakness in China would have significant implications to the African countries. In 2014, China overtook the West as the biggest investor in African countries. As a result, the slow growth would have implications in the countries it invests.
Ebola was one of the reasons why African countries failed to hit the targets in 2014. Many investors who had planned an entry in the continent slowed down. Many airlines avoided the West African countries. Many Westerners who still believe that Africa is a country avoided the continent at all cost. With Ebola now fully eradicated, it is expected that the investment landscape will change in the next half of the year.