The Economic Performance of the World’s Emerging Regions – Part 3

This is the third in a series of blogs which are analysing the economic prospects of the world’s developing regions in 2014. So far I have written about Latin America & the Caribbean and Middle East & North Africa. This time round I’ll be looking at Sub-Saharan Africa. As it relates to this blog I’d just like to point out Ti’s Sub-Saharan Africa Logistics 2012 report, which offers rare insight into the logistics investment opportunities in the region.

Sub-Saharan Africa

To give the following analysis some context, according to the IMF, Sub-Saharan Africa’s two largest economies South Africa and Nigeria together accounted for almost half (26.9% and 22.2% respectively) of the region’s GDP in 2013 (in dollar terms, measured at current prices). The next highest country was oil dependent Angola (9.4%) followed by Ethiopia (3.6%), Ghana (3.5%) and Kenya (3.4%).

According to the World Bank, GDP grew by 4.7% in the region in 2013, with growth in investment the main driver. Particularly telling is that net foreign direct investment (FDI) grew by 16.2% to $43bn, with much of this targeted at the mining, oil & gas sectors, though non-resource FDI was also up. Rising consumer incomes are boosting demand in the telecoms, finance, retail and transport sectors. Holding back the region was South Africa’s economy, which expanded by only 1.9% in the year. On the other hand, propping it up was Nigeria, which grew by 6.7%. If South Africa is excluded, growth for the rest of the region averaged about 6%.

Looking to 2014, regional GDP growth is expected to be higher at 5.3%, fuelled by growth in domestic demand associated with growing consumption and investment. The World Bank believes inflationary pressures will be relatively weak which will permit lower interest rates. This should be the main driver behind higher domestic demand. While many believe the region to be dependent on resources, private consumption is the most important determinant of the region’s GDP accounting for over 60% in 2013. Sub-Saharan Africa has a population of almost 1 billion – Nigeria has about 170 million and South Africa has about 50 million people respectively. So now, and even more so in the future, it is the development of consumer markets in the region that we should paying the most attention to.

With consumption and investment expected to chug along nicely, the greatest risk to the region appears to be commodity price volatility. Although, the dollar price of oil remained relatively stable in 2013, metals and minerals prices fell by 5.5% while agricultural commodity prices fell by 7.7%. So despite export volumes rising in many countries, regional export incomes actually fell by 2.4%. It is worth noting that the World Bank believes that a shock to global oil prices would affect the growth rate of Sub-Saharan Africa more than any other region in the world, with major producers such as Angola, Nigeria and Gabon hit the hardest.

To sum up, barring a sharp fall in the oil price or major unrest cropping up in somewhere like Nigeria, Sub-Saharan Africa will grow by more than any other emerging region outside Asia. Excluding South Africa, which is anticipated to grow by just 2.7% in 2014, the region’s growth may well surpass South Asia’s predicted growth rate of 5.7%, lagging behind only the premier emerging region of East Asia and Pacific.

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