25 January 2012
While economic growth in sub-Saharan Africa will remain subdued at about 5% in 2012, in line with an expected slowdown in global activity, none of the continent’s key economies are expected to slip into recession, a new report by Standard Bank says.
The bank’s latest African Markets Revealed report examines some of the key international and local factors that will drive markets in 21 African economies and covers strategies for investing in the continent across foreign exchange, interest rates, equities and Eurobonds.
African markets ‘to roll with the punches’
The report notes that the significant downward re-pricing of global growth since May 2011 fostered a jittery risk environment, which added to the very testing circumstances already faced by many African markets.
However, Standard Bank Group head of African research Stephen Bailey-Smith maintains that there are good reasons to believe that African markets will roll with the punches in 2012.
“Although we are still cautious on global growth, we are more constructive on asset prices that have already discounted plenty of bad news and are benefiting from ample G4 liquidity,” he said in a statement this week. “Such an outlook should prove more supportive for commodity prices and portfolio flows into Africa that have been extremely limited in recent years.”
Economic growth forecast
Standard Bank’s latest economic growth forecast remains the same as that of 2011 and is below the International Monetary Fund’s (IMF) 5.2% projection.
“Since May 2011 we have been revising down our growth estimates for Africa predominantly in line with an expected slowdown in global growth activity,” said Bailey-Smith. “Our projection for weighted sub-Saharan African growth was 5% in 2011 and a similar trajectory in 2012, which is well below the IMF’s expectation of 5.8%.”
He explained that one of the key issues of disparity between the IMF and the Standard Bank Group view is with regards to South Africa, which remains the largest economy on the continent.
Standard Bank Group expects South Africa’s economic growth in 2012 to be lower than expected, which will drag down sub-Saharan African’s weighted growth aggregate.
The IMF expects South Africa to grow at 3.6% in 2012 (up from 3.4% in 2011), but Standard Bank Group expects both of these numbers to be lower than expected, pulling down the Sub-Saharan Africa aggregate, he said.
Upward revision of Nigerian GDP
The report notes that another potential complicating factor will be the likely sharp upward revision to GDP that Nigeria is likely to get from the result of new survey data. This will increase the weights of the faster growing sectors of the economy in a similar way to the process in Ghana in late 2010.
“Interestingly, excluding South Africa and Nigeria, the IMF sees Sub-Saharan Africa growth of 6.8% year-on-year in 2012 from 5.4% in 2011,” said Bailey-Smith. “Once again we are more cautious, projecting a figure of 6.0% for 2012 as more likely, as we see SA as the key drain rather than Nigeria.”
The report is upbeat about the performance of currencies, bonds and equities in key African markets, noting that there has been marked improvement in recent months in the performance of Africa’s currencies as the markets again pressed home the message that real interest rates matter.
“The sharp increases in interest rates have added significant protection to a number of currencies and made them extremely attractive from a carry trade prospective,” the report explains.
Political risks remain
The report also cites political risk of a series of elections as one of the exogenous variables driving Africa’s markets that will remain a key differentiator in 2012.
“There is no shortage of election risks across Africa in 2012, with elections (or referendums) taking place in possibly 20 out of the 54 countries across the continent.
“The most closely followed by the international investor community will be the outcome of the ongoing electoral process in Egypt, presidential election in Senegal on 26 Feb 12, parliamentary and presidential elections in Kenya and parliamentary and presidential elections in Ghana in December 2012”, said Bailey-Smith.
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