Staying the course

How can Africa find new opportunities in a rapidly

changing macro/political model?

Presentation to ACCA’s Global Public Sector Conference

February 2017

Page 2

Globally, the economy seems to be in good shape although emerging markets are lagging

Page 3

Globally, growth is robust in Asia, and recovering in mature markets

February 2017

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

Australia China India Indonesia Japan Malaysia South Korea

GDP quarterly growth: Asia Pacific 3Q13-2Q16 3Q16

Russia South Africa Turkey

-2.5-2.0-1.5-1.0-0.50.00.51.01.52.02.53.0

Argentina Brazil Canada Chile Colombia Mexico United States

Americas Europe

Source: OECD France Germany Italy United Kingdom Eurozone

Selected emerging markets

Page 4

But Brexit and ‘Trumpit’ create a very different ‘operating model’ for global growth

► Trade flows are likely to slow as more protectionist policies are implemented

► Tit-for-tat actions and responses lead to rising inflation

► Where does this leave emerging markets?

February 2017

Telegraph 01 Feb 2017 The Guardian 01 Feb 2017

FT 16 Oct 2016

Korea Times 23 Jan 2017 NY Times 22 Jan 2017

TimesLive 09 Nov 2016 CNN money 11 Jan 2017

Bloomberg 05 Jan 2017

Page 5

A new political reality creates a shake-up in the world’s economic order

► What happens when consumer prices rise in respond to higher costs?

► Trump’s popularity wanes

► Britain’s appetite for Brexit declines – but its too late to stop the process

► How does business react to forcibly changing supply chains?

► What does Mexico choose to do?

► Mexicans are largely angry and would prefer NAFTA be scrapped

► How does China respond?

► Could impose duties on US imports

► Shift demand away from American products (Boeing, Apple)

February 2017

Page 6

Emerging markets are recovering – thanks to a commodity

revival

Page 7

South Africa

-3

Brazil

-6

Mexico

28

India 50

Russia

-22

Turkey

-33

-80

-60

-40

-20

0

20

40

60

80

100

120

EM currency movements 2011 - 2016

Weak growth has hurt EM currencies Four EM’s had their currencies at least halving in value. Mexico’s and Turkey’s currencies are under renewed pressure

1Q2011 based to 100

0

-18

0

5

-8

-1

-4

-9 -8

-1

-4

-1

0

-6 -4 -5

0

-13 -13

4

1

5

1

ZAR/US$ quarterly movements 2011 - 2016

South Africa had its first currency gain in six years in 2016

Page 8

This is favourable for Africa’s turnaround

Page 9

Africa: slowdown or meltdown? Our view remains that Africa’s rise over the past 15 years is real

February 2017

4.9

5.7

-0.1

4.2

3.3 3.1 3.5 3.8

6.8

7.6

4.0

5.0 5.2

3.4

4.0 4.5

2005 2007 2009 2011 2013 2015 2017 2019

SSA

World

GDP growth (%)

Source: IMF World Economic Outlook, Apr’16

Page 10

Drivers of stronger growth Commodity prices – particularly oil – are stronger and appear more sustainable at current levels: Nigeria, Angola and Gabon will benefit

Long term FDI flows increasingly skewed towards the consumer facing industries concentrated in large urban areas.

Infrastructure continues to be a key driver of growth and has historically been a drag. Governments are addressing the backlog.

Aligned with infrastructure is a need for economic diversification – these initiatives will continue despite revived oil prices.

China appears to be more likely to recover from recession and increase commodity demand.

Rising regional trade flows will make for greater efficiencies and quicker supply chains.

2.0 3.0

4.7 4.9

5.5 5.6

6.0 6.4

6.9 6.9 7.0 7.0 7.1

South AfricaNigeriaMalawiZambia

CameroonDRC

GhanaKenya

TanzaniaMozambique

SenegalEthiopiaRwanda

GDP growth forecast 2017 - 2020

Africa’s growth prospects should improve 2016’s growth outlook proved optimistic. We think 2017’s will prove pessimistic

Africa’s major economies are hurting, but

others are the fastest growing globally Sub Saharan Africa IMF Forecast 2016 - 2020

SA and Nigeria make up 40% of SSA GDP

4.3 2.8

1.4

4.9 4

2.9

2016 forecast 2017 forecast

Source: IMF, Oxford Economics

Page 11

South Africa’s growth recovers, Nigeria faces stagflation, Kenya’s growth is solid

5.2

GDP 0.5

2.5

CPI 6.7

repo rate 7.0

[VALUE].0

ZAR/US$

14.8 14.5

0

2

4

6

8

10

12

14

16

Credit rating concerns and political events dominate

CPI 20.2

12.8

GDP -1.5

4.3

repo rate 13

13.1

-5

0

5

10

15

20

25

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

South Africa Nigeria Kenya

CPI 6.3

5.5 GDP 6.2

5.8

repo rate 10.0

9.5

0

2

4

6

8

10

12

14

16GDP growth remains steady, with

inflation stable Forecast Forecast

Forecast

Recovering oil prices lift Nigeria out of recession

Page 12

FDI illustrates sustained interest over the long term

Page 13

FDI 2015: the global landscape FDI projects into Africa rise even as other major regions decline

February 2017

Source: fDi Markets

Africa is one of only two regions that saw growth in FDI projects in 2015

3,710

1,398

2,017

608

1,265

4,318

771

4,000

1,344

2,195

643

1,307

4,643

722

Western EuropeRest of EuropeNorth AmericaMiddle EastLatin America &Caribbean

Asia-PacificAfrica

FDI projects by region

2014 2015 Change in FDI projects (2015 vs. 2014)

+7%

-7%

-3%

-5%

-8%

+4%

-7%

Page 14

FDI 2015: the headlines Despite economic headwinds, FDI flows to Africa remain robust

February 2017

112

239

137 132 168

121 131 160 149

55

140

84 70 68 47 66 89

71

2007 2008 2009 2010 2011 2012 2013 2014 2015

Jobs created from FDI projects ('000)

Capital investment (US$b)

405

874 754 694

923 826 882

722 771

2007 2008 2009 2010 2011 2012 2013 2014 2015

FDI projects

+7%

Source: fDi Markets

Value and jobs created from FDI projects

Investors remain confident about Africa’s FDI regime

A 7% rise in FDI projects in Africa vs. 5% drop globally

US$71bn investment in 2015 vs. US$68bn between 2010 and 2014

4.4% more jobs created in 2015 compared to the 2010-14 average

Page 15

FDI into SSA East Africa closes the gap with Southern Africa

February 2017

East

Africa

Southern

Africa

Central

Africa

North

Africa

West

Africa

% share

(2015)

21.5%

28.5%

29.8%

% share

(2015)

26.2%

% share

(2015)

27.6%

20.3%

19.2%

% share

(2015)

2.3%

2.0%

3.6%

% share

(2015)

22.3%

29.7%

21.5%

FDI projects

FDI value

Jobs created

19.5%

25.8%

East Africa had its highest ever share of FDI projects in 2015

Source: fDi Markets

Page 16

FDI 2015: the global landscape FDI projects into Africa rise even as other major regions see decline

Feb 2017

Source: fDi Markets

Africa is amongst the only two global regions that saw growth in FDI projects in 2015

3,710

1,398

2,017

608

1,265

4,318

771

4,000

1,344

2,195

643

1,307

4,643

722

Western EuropeRest of EuropeNorth AmericaMiddle EastLatin America &Caribbean

Asia-PacificAfrica

FDI projects by world region

+7%

-7%

-3%

-5%

-8%

+4%

-7%

2014 2015 Change in FDI projects (2015 vs. 2014)

Page 17

FDI into SSA A strong year for Kenya while South Africa retains its lead

February 2017

Top 10 destination countries by FDI projects (2015)

Kenya becomes the biggest gainer, with year-on-year FDI project numbers growing over 50%

Source: fDi Markets

Page 18

FDI sources All regions (except rest of Europe) increased FDI projects into Africa

February 2017

142 146

54 70 15.6%

107 108

Western Europe

North America

Latin America & the Caribbean

Africa

Asia-Pacific

Rest of Europe

Number of FDI projects in 2014 Number of FDI projects in 2015

FDI projects, value and jobs created by source

11.2% 11.2%

+0.9%

5 8 0.6% 0.8% +60.0%

15.3% 12.2%

+2.8%

116 127 8.7% 23.0%

+9.5%

Middle East

8.4% +29.6%

270 300

42.5% 40.1%

+11.1%

28 12 6.1% 4.3%

-57.1%

Change in FDI projects (2015 vs. 2014) % share of capital investment (2015) % share of jobs created by FDI (2015)

Source: fDi Markets

Page 19

FDI trends Longer term, investors are diversifying away from extractives

February 2017

Extractive sectors give way to consumer-facing sectors in attracting investor interest*

27%

5.8%

33%

44.7%

0%

10%

20%

30%

40%

50%

60%

2005 2007 2009 2011 2013 2015

FDI projects, 2005 – 2015 (% share)

Extractive Consumer-facing

Technology, media and telecom (TMT), financial services and consumer products and retail (CPR) are

the primary beneficiaries of FDI projects in Africa. These three industries have led investment into

Africa almost every year since 2009.

Source: fDi Markets; *Extractive sectors include coal, oil and natural gas as well as mining and metals; Consumer-facing sectors include TMT, CPR and financial services

Page 20

Extractives receive a greater share of capital, but service sectors get more projects

2006 – 2015

Share of Share of

Projects Capital

Consumer facing sectors 47.9 14.8

Consumer products and retail (CPR) 18.3 2.2

Technology, media and telecommunications (TMT) 16.3 7.6

Financial services (FS) 13.3 5.0

Real estate, hospitality and construction (RHC) 8.0 22.2

Extractive sectors 10.8 44.1

Mining and metals (M&M) 5.8 11.8

Energy 5.0 32.3

February 2017

22.2

18.3

32.3

16.3

13.3

Page 21 February 2017

Financial Services attracts more projects; RHC and Coal, oil & gas receive most capital

18.3 16.3 13.3 9.5 8.0 5.8 5.2 5.0 4.9 4.2 2.2

7.6 5.0 1.1

22.2

11.8

2.8

32.2

1.1 2.6

Financial Services Tech & Telecoms Retail Business services Real Estate &Construction

Mining Transport Coal, oil and naturalgas

Diversified industrialproducts

Automotive

FDI projects and value by sector (% share, 2006-15)

FDI projects and value by sector (% share, 2015) 16.6 15.3

12.8 12.8

6.9 5.6 5.6 5.4 4.4 4

8.6

2

6.4 1.7

16.4

4.1 1.1

17

2.8 3.8

Tech & Telecoms Financial Services Retail Business services Real Estate &Construction

Transport Diversified industrialproducts

Cleantech Chemicals Automotive

Projects Value

Source: fDi Markets

Page 22

FDI sectors Investors line up to enter Africa’s “next-generation” sectors

February 2017

Fourth largest sector by

FDI projects in 2015

124% rise in capital

investment in 2015

Capital investment in 2015

was 13x that of 2014

Second largest sector by

capital investment

“Next wave” of sectors are drawing investor interest

Business services Automotive

Cleantech Life sciences

Source: fDi Markets

Page 23

What needs to happen to propel Africa’s growth?

Page 24

Implications for businesses and governments What does all this mean …?

February 2017

For businesses For governments

In 2015, Africa

experienced its

strongest economic

headwinds in 15 years.

Despite this, SSA

remains one of the

world’s fastest growing

regions.

► Distinguish between shorter-term volatility

and longer-term structural factors.

► Keep sight of the fundamental factors that

make Africa a compelling investment

destination such as a strong resource base

and burgeoning domestic markets.

► Maintain a strong balance between growth,

profitability and risk management.

► Strike a balance between an appropriate policy

response to the current (shorter term) economic

environment and ongoing investment in and

progress on governance, diversification,

infrastructure, business enablement and human

development.

► Intensify the dialogue with business leaders

and entrepreneurs with an emphasis on

energizing and enabling the whole economic

and social ecosystem.

► Get better at telling better stories about Africa.

► Improve the availability and quality of data on

the continent to facilitate the setting of the right

priorities and for tracking performance

efficiently.

Page 25

Implications for businesses and governments What does all this mean …?

February 2017

For businesses For governments

There was a

fundamental shift in FDI

investment post 2009-

2010, with the focus

moving away from

extractive sectors. This

shift is continuing

towards more

consumer and service

focused investments.

► Do not focus on “Africa” as a single unit of

analysis but rather a set of diverse and

fragmented markets

► Adopt a granular, fact-based approach to

assessing investment and business

opportunities in Africa.

► Prepare for more sophisticated strategies to

achieve the top-line growth that was more

easily achievable in the past.

► Assess options given new wave of

“emerging sectors” in Africa such as

business services, automotive, cleantech

and life sciences.

► Develop a distinct value proposition as an

investment destination that can turn into a

sustainable competitive advantage.

► Implement policies that help reduce

dependence on natural resources and develop

other strategic sectors urgently such as

manufacturing, construction, agriculture and

services.

► Improve education and training to upgrade

labor skills.

► Infrastructure is the key component given the

large deficit. Power is the most urgent

infrastructure hurdle, followed by rail and road

transport.

Page 26

Government must drive policy reform, but faces funding constraints for the next while

► There is a competition for capital

► That means governance has to be the best it can

► Implications of slower GDP growth – less state resources to fund

infrastructure programmes

► Being dependent for 80%+ of state revenue from one source is not

sustainable (Nigeria, Angola)

► Building self sustainable markets – the rise of the consumer class

(and moving away from extractives) is key

► Diversification from extractives is critical

February 2017

Page 27

Case study Rwanda: implementing reform and reaping the benefits

February 2017

26

5

31

5

16

63

59

1

12

02

41

9

49

6

11

97

143

67

50 45 54

32

55 59 56 62

0

20

40

60

80

100

120

140

160

0

200

400

600

800

1000

1200

1400

1600

1800

Ease of doing business versus FDI flows

FDI US$m EoDB rank

2008 09 10 11 12 13 14 15 16 17

Average FDI Investment US$m

2008-12 709

2012-15 933 1.6

1.8

1.9

2.6

2.7

2.8

2.9

3.1

3.4

3.7

4.1

6.2

10.9

14.8

18.1

South Africa

Nigeria

Sudan

Angola

Zambia

SSA

Ethiopia

Tanzania

DRC

Ghana

Kenya

Cameroon

Cot d'Ivoire

Rwanda

Uganda

FDI as % of GDP 2015

Source: World Bank, FDI Intelligence, EY analysis

Page 28

What do high performing FDI nations have in common?

► Approach to foreign investment is open

► High growth markets (but this is a symptom rather than a cause)

► Pro actively reducing bureaucracy and enhancing efficiencies

► Integration with neighbours into regional blocks

► Fostering trade and investing in infrastructure

► Adopting unambiguous policies

► Have a commitment to open economies – both investment and trade

► Policy commitment to broaden the economy

February 2017

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