In recent months, the news has told us of an African continent in difficulty. Economic growth has been among the lowest in recent years and old "bogeymen" such as rising debt have re-emerged. Is the parable of the African economic miracle to be considered in question? According to Sace, no.
In 2015, Sub-Saharan Africa set a record, unfortunately negative: the region's GDP grew by 3,4%, the lowest rate recorded since 2000. Even in 2009, the year of global recession, the subcontinent managed to do better . And the latest forecasts for the current year leave little room for optimism and focus on a further slowdown in economic activity, around 3%, pending a recovery starting from 2017-1801.
Yet, according to an analysis by the insurance-financial group controlled by CDP, differentiation between the 49 countries of the continent is now more than ever necessary. And what makes the difference is often what Sace defines as Factor C3, i.e. the set of commodities, China and foreign capital. The greatest difficulties are recorded in those countries where the C3 Factor is high, such as South Africa, Nigeria, Angola or Zambia. Conversely, some countries less exposed to Factor C3 continue to present interesting opportunities, for example in East Africa, with Kenya, Tanzania and Rwanda, and West Africa, with Senegal and the Ivory Coast.
CONVENIENCE
First of all the commodities, if we consider that about two thirds of the region's total exports are attributable to energy and mineral resources and metals, compared to 16% of manufactured goods and 10% of agricultural products02. Oversupply, uncertainty about demand in major emerging markets and a stronger dollar continue to push commodity prices down. And the African countries exporting oil & gas, in particular Nigeria and Angola, are paying the price for the repercussions, also due to the negative effects of the currency restrictions on the activity of the private sector; not forgetting other struggling oil economies, such as the Republic of Congo, Gabon and Equatorial Guinea. In addition, other countries in Southern Africa (e.g. Botswana, South Africa and Zambia) and West Africa (Guinea, Liberia, Sierra Leone) have also had to deal with deteriorating prices of their exported non-energy mineral resources, such as iron, copper, diamonds and platinum.
THE CHINA
The second factor is China, an important player in the economic fortunes of Sub-Saharan Africa: as early as 2011, China became the region's leading trading partner and Sino-African trade is now worth about 200 billion dollars, a level comparable to trade between Sub-Saharan Africa and the European Union and about four times that with the United States. The potential repercussions of the Chinese slowdown on African growth clearly emerge from these numbers.
Beijing's drive towards internal growth more linked to consumption and services has in fact translated into a drop in imports from the African subcontinent, in particular of energy and mineral resources. Those economies that find themselves, by choice or necessity, depending for a large part of their sales on the Chinese market, with shares of even more than 40% of national exports, such as Angola, Sierra Leone, Mauritania, Zambia are suffering or the Democratic Republic of the Congo.
FOREIGN CAPITALS
Last, but not least, the foreign capital factor. In past years, the wealth of commodities and positive financial returns had attracted large multinationals and international investors to Sub-Saharan Africa. Today, in the context of low commodity prices and a gradual strengthening of the dollar, international capital flows towards Sub-Saharan Africa are progressively decreasing.
Among the explanations, a lower propensity of European banks to lend to the region, but also a decline in Eurobond issuance by African countries, which fell to $9,2 billion from $12,9 billion in 2014 The number of issuances has decreased following conditions that have become more expensive, in some cases almost prohibitive: yield spreads have reached over 9% (as in the case of Zambia in July 2015 and Angola in November 2015) if not even 10% (Ghana, as of October 2015).
The international capital market therefore suffers from a greater risk that African countries will not honor their obligations, as also emerges from the recent news on the Ematum case in Mozambique. It is no coincidence that since the beginning of 2016 there have been no new issues of Eurobonds by countries in the Sub-Saharan area.
THE ITALIAN EXPORT
The economic slowdown in Sub-Saharan Africa has also impacted the commercial activity of our companies in the region. In 2015, Italian exports to the area stopped at 5,7 billion euros, down by 7,9% compared to the previous year. This negative data is particularly significant because it comes after the historic record recorded in 2014 and above all because it is the first setback after the last economic crisis on the continent in the two-year period 2009-10. Our forecasts indicate for 2016 a further decline in Italian exports to the area, albeit more attenuated.
The African markets that record a more evident drop in the demand for Italian goods are those characterized by a high C3 factor. We can cite the declines of between 25 and 40% in Italian exports, in particular of capital goods, to African economies more linked to oil, such as Nigeria, Angola and the Republic of Congo. But it is also interesting to note that a lower C3 factor also corresponds to a sharp increase in Italian exports. In fact, in 2015 our sales to those economies less dependent on the three factors grew by double digits, such as for example the Ivory Coast (which with a +59% becomes the third destination market in all of Sub-Saharan Africa), Kenya and Senegal.
3 TIPS
For Sace, the recent worsening of the African economic context underlines once again that in order to go abroad it is essential to adopt a shrewd strategy, even when things are apparently going well.
The export credit company therefore offers three suggestions: make use of advisory services to learn about the strategic nature of a project and evaluate the impact of logistical-operational difficulties in the area; accompany the commercial proposal with a financial offer that lightens the repayment burden; adopt tools to mitigate or hedge against the risk of non-payment, due both to the commercial insolvency of the counterparty and to any currency restrictions in the reference country.
THE PERSPECTIVES
In conclusion, despite the difficulties that most sub-Saharan African countries are experiencing, we are not at the end of the African economic miracle. The commodity boom has stopped, China exerts a minor driving force for African growth and foreign capital can reorient itself towards the yields once again offered by safe havens. But Sub-Saharan Africa is now an economic reality that is not worth neglecting.
Its population is 1,2 billion people and according to United Nations projections, one in four people will live on the subcontinent by 2050. South Africa, Nigeria and Angola alone will continue to account for over 50% of total Italian exports in the area over the next few years, but the expected strengthening of other emerging African economies, especially those less tied to Factor C3, and the ever greater proactivity of Italian operators in this region are the conditions for the continuation of the African economic miracle.
