Sub-Saharan Africa trends, quarterly update

This post provides an update to the July Sub-Sahara trends. The fundamental status is unchanged, but there are obviously important country-specific changes and updates, incl. on Ebola and fiscal crisis in Ghana and Zambia.

Mega-trends – unchanged since last update in July 2014:

  1. Continued growth for the short- and medium term. Growth will continue based on natural resources, IT/technology and pay-off from earlier reforms.

  2. The DNA is not changing. African states and institutions are overall not getting stronger. Politics is driven by neo-patrimonialism. A few places see incremental improvements, but similarly, a number of places are stagnating or drifting back in terms of political and economic space. Limited capacity to handle crisis.

  3. Inequality is an increasing risk. Perceived and real gaps are becoming more visible gaps. Growth is largely jobless in many places.

Issue

Parameters

Status, July 2014

Why

To watch

Present situation

Social development

Growth and macro-economy

Governance and security

Global drivers

Second best

Trend: ↘

Growth momentum continues, but risks increasing

Macro-economic stability continues →

Market size

Democracy ↗

Corruption

Security concerns ↘

Inequality

  • Increasing interventionism

  • Key infrastructure (power, harbours)

  • Popular dissatisfaction

  • Root causes and needed reforms progress

  • Major security incidents

  • Ebola

  • China slowdown

Business implications:

  1. Market size and strength: Growing. Still substantial gaps with opportunities for good returns. Consumer markets in booming Lagos, Nairobi and other urban areas of particular interest.

  2. Politics: More places see overoptimism in terms of investment attractiveness. Increasingly, populist interventions used, gradually undermining earlier progress.

  3. Security: Overall increasing risks (Nigeria).

  4. Regulatory framework, contracts and contract sanctity: Formal legal frameworks are gradually improving. Yet contracts and contract sanctity issues remain a serious issue.

  5. Assets (staff, capital, profits);on balance unchanged, but with increasing risks in crisis countries – could worsen with lower oil price.

  6. Ebola; at this stage, our analysis indicate that implications outside the 3 main affected countries are minimal. A spread beyond individual cases to Ivory Coast and Ghana would be more serious and substantially affect cocoa prices and re-emergence in Nigeria could affect overall growth rates.

Noteworthy development in ATM’s focus countries:

In the 8 countries closely followed by ATM three points are worth following:

  • Zambia: despite a tricky political situation, Zambia is continuing progress toward reducing their fiscal deficit, latest by maintaining a public wagebill freeze.

  • Ghana has approached the IMF and are working to agree a programme. Initial indications are worrying – messages are contradictory, the public seem increasingly worried and it’s not clear government will be able to agree or implement a programme.

  • Growth in mega-cities continue to impress. Lagos is the frontrunner in this regard, but Nairobi is impressive too. In the short run, a key test for Lagos and Nigeria is the implications of a likely messy and violent election in February 2015.

Scenario status:

ATM operates 4 core scenarios. Overall, there are most features from the 2nd best scenario with a few features from the top scenario (continued natural resource finds, G7 growth) and a few from the 3rd scenario (security, institutional reform speed, fiscal space and China slowdown). We are also closely following key political events – notably the Nigerian elections and the probability and impact of major security incidences. Core to moving to a better scenario would be about better use of natural resources and better fiscal management and public sector spending, probably pushed by a more engaged middle class.

Reforms and addressing root courses (unchanged): Most countries and governments are aware of key root causes and have various degrees of credible plans to address them. Urban middle classes increasingly demand action. Yet most leaders are struggling to find space between vested interests, short-term political pressures and popular demands. The result tends to be very limited progress in terms of systemic reform. A range of technical reforms – incl. business environment reforms are still making progress, even if the overall trend tend to be towards more interventionism and populist focus.

Big picture risk to watch (unchanged): Complacency caused by overoptimism and overconfidence. Fundamentals are still weak and many countries struggle with large fiscal deficits leaving very limited fiscal space in case of a slowdown. Infrastructure (power, roads, harbours) reaching breaking points with slow, inadequate responses – often complicated by vested interests. Should be seen in light of increasing business need and increased public expectations. Gradual increasing domestic protests – ranging from peaceful, constructive protests (social media, peaceful, organised street protests) to large, spontaneous protests, driven by inequality and demand for better accountablity.

Reform drivers: There are still reformers in governments and a number of leaders have good intentions, but their power and space is limited. Over time, a stronger and more professional private sector may reach critical mass. Parts of urban middle classes can be a driver of reform, but will need to up their game if they want real influence. Civil society may be a driver, but the core narrative remains poorly coordinated and overly interventionist in most places. The international community can drive some reform on the margins (eg. on corruption, trade and security). In the places where fiscal space is increasingly limited crisis or risk of crisis may be a driver of reform.

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