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The Rise of the New World’s Frontier and Emerging
Markets: Implications for the Global Economy
Presentation to the EDP CEOs Forum
Cape Town South Africa
21 November 2011
CONFIDENTIALITY and DISCLAIMER: This document and its contents are strictly private and confidential, privileged and for the information of the
intended recipient only. Frontier Advisory makes no representations or warranties in respect of the content of this document, and will not be liable for any
loss or damage of any nature that may arise from this document, the content thereof or your reliance thereon. Should you have received this document in
error please contact the sender immediately and destroy this document.
Contents
The Global Economy*
* as we should
know it
Share of the Global Output, 1 AD
Share of the Global Output, 1500 AD
Share of the Global Output, 1900 AD
Share of the Global Output, 1960 AD
Share of the Global Output, 1990 AD
Share of the Global Output, 2015 AD
The Rise of the BRIC’s
Is South Africa a “deserving member”?
The Shift in Wealth
The Geo-Economic Shift
The Changing World…
The Changing World…
The Changing World…
“One of the landmarks of change in 2011 will
be China overtaking America as the biggest manufacturer. But China too could find itself being overtaken by India in economic growth, in what would be a sign of things to come.”
Michael Pilkington
Editor, The Economist
The Economist: The World in 2011
Economic Uncertainty
Global Current Account Imbalances
Many western economies, particularly the US, ran significant current account deficits that were financed by
current account surpluses in emerging Asian economic powers, particularly China. As the world’s emerging
economies transformed themselves from debtor to creditor economies, geo-economic power began to shift.
US$14.767 trillion debt debacle (3:15pm, Mon26Sep)
Impact of Crisis on GDP & Unemployment
Why its bad to have Lehman Brothers on your CV
Emerging vs. Developing Market Performance
Emerging vs. Developing Crude Oil Consumption
Source: BP Statistical Review of World Energy
Raging cost of living
Global Cost of Living
Real GDP % Performance – Europe
North vs. South Europe
Debt is out of control (June2011) – Global Debt Clock
Debt “Recovery” (June2011)
African Leading Lights Debt (June2011)
Source: Bloomberg,
International Monetary Fund
That Debt Problem
Source:
World Economic Forum Global
Competitiveness Report 2011
16/10/2010
The Race to the Bottom
Outcomes of the G8 2011 Summit in Deauville
“G8 Summit – a breakthrough
for the Tunisian economy.”
- Tunisia live.net 17/05/2011
“G8 Disappoints Sub-Saharan
Africa”
- All africa.net 28/05/2011
Source: Thomson Reuters DataStream; EPFR
Financial Times, 14 January 2011
The Resulting Impact on Emerging Markets
Real GDP Per Person Q4 2007-Q2 2011 % Change
And in Other World News… Key Developments in 2011 and Outlook going forward?
Japan’s Devastation
…and the whole event was captured live
North Africa’s Devastation
“Tunisia Elections 2011: Voters Turn Out For First Free Vote”
– Huffington Post 23/10/11
What about Libya?
Libya – Impact on the Rest of the World
26/02/2011
Consequences for global oil supply It is reckoned that Libya has the largest proven oil reserves in Africa (± 44 billion barrels) – theoretically provide enough oil for another 76 years of production Main oil-producing companies in Libya:
BUT
Libya – Impact on the Rest of the World
26/02/2011
Oil output in Libya has been cut by 50% Oil prices have risen and are set to rise even further
If oil prices rise to US$ 200 a barrel, it could lead to a double-dip recession worldwide
2 March 2011 US$ 115.96
Addressing the Facts
Unemployment Rate
GINI Coefficient
Corruption Index (out of 178)
Human Development Index
Press Freedom (out of 196)
Democracy (out of 167)
Young Adult Population (% under 25)
Tunisia 13.1% 40.0 59 81 (0.683) 186 144 42.1%
Egypt 9% 34.4 98 101 (0.620) 130 138 52.3%
Libya 13% N/A 146 53 (0.755) 192 158 47.4%
Bahrain 3.7% N/A 48 39 (0.801) 153 122 43.9%
Yemen 35% 37.7 146 133 (0.439) 173 146 30%
Algeria 9.7% 35.3 105 84 (0.677) 141 125 47.5%
Morocco 9.1% 40.9 85 114 (0.567) 146 116 47.7%
Iran 14.6% 44.5 146 70 (0.702) 175 158 34%
Oman ± 15% N/A 41 N/A 153 143 51.5%
Iraq 18% N/A 175 N/A 144 111 60.6%
Jordan 12.5% 39.7 50 82 (0.509) 140 117 54.3%
The Young and the Restless?
The Young and the Restless?
• There are currently 5 65 320 Facebook users within Egypt • 50% of these users are between the ages of 18-24
• There are currently 305 420 Facebook users within Libya • 70% of the users are between the ages of 18-34
Top 10 for 2011
Competitiveness in Africa
Country 2005 2006 2007 2008 2009 2010 2011
SA 42 36 44 45 45 54 50
Mauritius 52 55 60 57 57 55 54
Namibia 63 72 89 80 74 74 83
Botswana 48 57 76 56 66 76 80
Nigeria 88 95 95 94 99 127 127
Egypt 53 71 77 81 70 81 94
Morocco 76 65 64 73 73 75 73
Zimbabwe 109 112 129 133 132 136 132
Selected African economies performance (2005-2011)
Source: World Economic Forum
The Rise of Emerging Markets
Tables have Turned
The recent
economic crisis
has shifted the
global power
balance
Balance of Power is Shifting East
Balance of Power – where’s the growth coming from?
The rise of the BRICs Output Growth Gap of Emerging vs. Advance Economies
Source: Relevant Country Statistical agencies and
Central Banks
Foreign exchange reserves
The Pockets are Full!
Sovereign or Saviour Wealth Funds?
Saving for Luxury Things & Times
Source: IMF - World Bank Data
Drug Dealer and Addict Syndrome
Over- indebted US consumers go on an unsustainable binge
Unsustainable Chinese export drive, built on cheap currency
$s earned from export drive went back into USA
↓ interest rates
↑ housing prices
Encourages US to loan more to buy more Chinese goods
“After 1989 capitalism saved China. And after 2009 China saved capitalism”
- David Miliband, Britain’s foreign secretary
Is Goldman Sachs Forecasting Still Relevant?
Is Goldman Sachs Forecasting Still Relevant?
Is Goldman Sachs Forecasting Still Relevant?
• Know your competitors
• Take a hard look ahead, anticipate the challengers
• Design a strategy for the new outlook
– create your own challenger
• Evaluate your operations and nurture your customer ties
• Find ways to ride the wave of globalisation instead of fighting it
– look for new opportunities
Implications of Emerging Markets on Established MNCs
Emerging Africa
Africa’s Abysmal Brand
May 2000 June 2003 August 2002
Reporting on Africa
July 2005 March 2008 September 2009
Africa in Perspective
Africa as a Frontier Market of 1 Billion
Africa’s Frontier Markets are Looking Up
The Economist’s Top Growers 2001-2010
Source: Economist and IMF forecast
The Economist’s Top Growers 2011-2015
Source: Economist and IMF forecast
How is Africa doing?
Algeria
Angola
Benin
Burkina Faso
Burundi
Cameroon
Cape Verde
Central African Republic
Chad
Comoros
DRC
Republic of Congo
Côte d'Ivoire
Djibouti
Egypt
Equatorial Guinea
Eritrea
Ethiopia
Gabon
The Gambia
Ghana
Guinea
Guinea-Bissau
Kenya
Lesotho
Liberia
Libya
Madagascar Malawi
Mali
Mauritania
Mauritius
Morocco
Mozambique Namibia
Niger
Nigeria
Rwanda
São Tomé and Príncipe
Senegal
Seychelles
Sierra Leone
South Africa
Sudan
Swaziland
Tanzania
Togo
Tunisia
Uganda Zambia
Zimbabwe
BHP Billiton, 52.8
0.1
1
10
100
1000
Gro
ss D
om
est
ic P
rod
uct
, Cu
rre
nt
Pri
ces
(In
bill
ion
US$
)
2010 GDP for African Countries (in billion US$)
Source: IMF Data, Frontier Advisory
Only 8 African
Countries had a
GDP in 2010 that
was higher than
BHP Billiton
Creating Frontier Markets in SSA
Growth underwritten by rising commodity prices; and from low base
Improved macro-economic framework
Capital inflows from BRIC economies
SA Inc pushing North, ME sovereign wealth pushing South
Rollout of sizeable infrastructure development
Remittances as a capital provider
Slowly improving intra-regional trade networks
Deepening capital markets – growing equity culture
Emergence of “African multinationals”
Urbanisation and increasing African consumer spend
Africa Today
US$1.6tr – Africa’s collective GDP in 2008
US$860bn – Africa’s combined consumer spending in 2008
316m new mobile phone subscribers signed up since 2000
60% of worlds’ total amount of uncultivated, arable land
52 Africa cities with more than 1m people each
20 African companies with revenues of at least US$3bn
But large and varying topography, languages, cultures
Still limited intra-Africa trade and investment
Africa – the untapped market of the future
US$2.6tr – Africa’s collective GDP in 2020
US$1.4tr – Africa’s combined consumer spending in 2020
1.1bn African of working age in 2040
128m African households with discretionary income in 2020
50% of Africans will be living in cities by 2030, and
urbanisation offers further productivity and income
opportunities
2bn African consumers by 2050
Continued strong growth trends given changes in global
economy and internal changes in continent’s societies and
economies
Contributors to Sub-Saharan African Growth
Growth underwritten by rising commodity prices
Improved macro-economic framework
Capital inflows from BRIC economies
SA Inc pushing up North, ME sovereign wealth pushing South
Rollout of massive infrastructure development
Remittances as a capital provider
Slowly improving intra-regional trade networks
Deepening capital markets – growing equity culture
Emergence of “African multinationals”
Increasing African consumer spend
SA Inc. as an Emerging Actor in Africa
The Privatisation of Aid
To Conclude…
Concluding Thoughts
• From “De-coupling” to “New Coupling”
• Emerging markets are the new drivers of growth and determinants of
the global growth cycle
• Over the medium term, African economies that align their development
needs to the EM reality will succeed, the rest will falter
• States are becoming more interventionist – “The Developmental State”
• Africa will be further marginalised from traditional economies….
• But will gravitate toward the BRICs
• We must differentiate between the growth story and true development
• Geo-strategic economic maps are being redrawn
CONFIDENTIALITY and DISCLAIMER: This document and its contents are strictly private
and confidential, privileged and for the information of the intended recipient only. Frontier
Advisory makes no representations or warranties in respect of the content of this
document, and will not be liable for any loss or damage of any nature that may arise from
this document, the content thereof or your reliance thereon. Should you have received this
document in error please contact the sender immediately and destroy this document.
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