Africa News blog

from MacroScope:

Building BRICs in Africa

Some eye-catching numbers from Standard Bank out today on the influence of BRICs countries -- Brazil, Russia, India and China -- on Africa.

First off, the bank says the global recession and its recovery have been nourishing these so-called South-South ties. But it is all now ready to take off. The bank estimates:

-- By 2015, BRIC-Africa trade will have incresed threefold, to $530 billion from $150 billion this year.

-- BRICs share of Africa's total trade will increase from one-fifth today to one-third in the next five years.

-- BRICS foreign direct investment stock in Africa will swell to more than $150 billion from around $60 billion today.

Standard Bank bases these assertions partly on estimates for BRICs growth over the next five years -- eg, domestic output, global output and a doubling of BRICs trade with the world in general. But it also sees Africa growing rapidly -- for example, a per capita real annual growth rate of 5.7 percent between now and 2015, and a doubling of private consumption in Africa's 10 largest economies. And it adds:

Crucially, a host of global-minded corporates is emerging from the BRICs. In 2010 231 (11.5 percent of the total) companies listed in the Forbes Global 2000 originated in the BRICs, up from only 83 companies (4 percent) in 2005. Recent trends are a harbinger of deeper potential.

from Global Investing:

Africa’s property laws (or lack of)

Africa's emerging commercial real estate markets may look tempting from the outside, but will remain the preserve of those with the highest appetite for risk.

Even the CEO of Growthpoint, South Africa's largest listed property firm, feels the continent (excluding South Africa) is not for the faint-hearted.

"We're sceptical with those African countries further north. Nigeria, Uganda, Kenya, Rwanda etc ... you're never sure if the law protects your property rights. The law around property title is certainly nowhere near as advanced as you would get in South Africa."

But others are more optimistic. Knight Franks' head of Africa Peter Welborn told a Reuters Summit in June that Africa opportunities were just as good if not better than other emerging markets such as Asia and Latin America, promising hefty returns.

Growthpoint is the landlord for some 440 commercial properties in South Africa, but owns just two buildings in the rest of the continent, in neighbouring Namibia.

"We're not unhappy with our properties in Namibia, but we're not necessarily long-term holders," Sasse says, adding those were inherited as part of Growthpoint's past portfolio purchases. Instead, the company is casting its net much further afield to Australia, where he says its new property unit could spend A$2 billion on acquisitions over the next two years.

from Global Investing:

Can domestic demand boost African markets? Duet’s Salami talks to Reuters Television

Direct and indirect foreign investors fled from Africa as the credit crisis sparked a flight to safety, or at least familiarity, but Ayo Salami, manager of the Duet Victoire Africa Index fund believes domestic demand can step in to underpin growth.

from MacroScope:

Africa alone

The good news for Africa when the global financial meltdown began was that its financial markets were generally so far behind the rest of the world that groups such as the World Economic Forum reckoned that there was little or no danger. A new paper, posted on the economic research website VoxEU, suggests that that might be a bit too optimistic.

Tilburg University economist and former World Bank official Thorsten Beck -- along with the World Bank's Michael Fuchs and Marilou Uy --  write that despite shallow financial markets, sub-Saharan Africa is unlikely to escape the repercussions of the financial crisis.

Indeed, they argue that the crisis is threatening what little progress has been made to reverse what they call the alarming superficiality of African finance.

African financial systems are small, both in absolute and relative terms . In addition, Africa’s financial systems are characterised by very limited outreach, with less than one in five households having access to any formal banking service. Banking is inefficient and expensive in Africa, as reflected by high interest spreads and margins and high overhead costs. Banking is also very expensive for deposit customers, as reflected by very high minimum balance requirements and annual fees in many African countries. High documentation requirements to open an account – that is, the need to present several documents of identification – also represent significant barriers given that large parts of the population live and work in the informal sector. Similarly, physical access is limited, as the low bank branch and ATM penetration numbers for Africa illustrate.

Perhaps the most worrying aspect of the report for the region, however, is that the authors reckon Africa is more or less on its own when it comes to fixing this.

For better or worse, the future of Africa’s financial systems is closely linked to the development of global finance, as are its real economies. However, it is up to Africa’s financial sector stakeholders – bankers, donors, and policymakers – to guide financial sector reforms in a way that maximises Africa’s opportunities, learning both from their own experience over the past 50 years and the experience in other emerging and developed economies.

The big question is whether such stakeholders will do so.

from The Great Debate:

Africa and the global economic crisis

- Jorge Maia is head of Research and Information for Industrial Development Corporation of South Africa, established in 1940 to promote economic growth and industrial development. The opinions expressed are his own -

Serious shockwaves are hitting Africa's shores as the global economic crisis unfolds.

The extent and depth of the damage is extremely difficult to assess or project, but it is clear that the pattern of financial flows associated with investment, lending and trading activity has been dramatically altered, with detrimental economic and social implications for the continent at large. The adverse impact has been gradually spreading from a regional perspective - a serious setback to Africa's recent growth performance, which had averaged 6 percent a year from 2003 to 2008.

The effects will vary widely, depending on each country's integration within the global financial system, its dependency on exports and tourism receipts, official development assistance and remittances from African citizens working overseas, among other factors.

Access to trade credit lines used to finance imports and investments is under threat due to the global credit crunch, while portfolio flows have been reversed and remain weak due to institutional deleveraging, pessimistic investor sentiment or extreme risk aversion.

Foreign direct investment flows are also expected to contract, although the rather long lead-time of typical projects could imply that some of the capital may have already been committed. The African banking sector is feeling the freeze in interbank lending worldwide from a funding standpoint, and may come under substantial pressure through its customer base should the economic slowdown intensify on the home front.

Where capital is still available, its cost is likely to have risen substantially, with implications for the viability of projects and for the debt repayment obligations of African countries. Such adverse trends are not only impacting negatively on capital inflows and national balances of payments, but also are resulting in greater volatility in foreign exchange markets.