Where’s the Growth? Africa

Did anybody say sub-Saharan Africa? Buy her a drink!

During the past 10 years, the gross domestic product of the 11 largest sub-Saharan countries increased 51 percent, more than twice the world’s 23 percent and almost four times the 13 percent expansion of the U.S., the largest economy, according to data compiled by Bloomberg.


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The robust expansion been accompanied by stabilizing inflation on the African continent, with the consumer price index for all of Africa declining to 7.8 percent from more than 13 percent in 2008, and the continent’s CPI remaining less than 8 percent since 2013, Bloomberg data show.

That combination of torrid growth and diminished inflation is proving an irresistible lure for global investors, who have seen the opposite trends plague the biggest emerging-market countries, Brazil, Russia, India and China.

For evidence of investor enthusiasm, look no further than Kenya and Nigeria, whose government debt has been outperforming most of the world’s. In the past five years, bonds issued by those two countries had total returns (income plus appreciation in local currencies converted to U.S. dollars) of 56 percent and 40 percent respectively, according to Bloomberg data. By comparison, the index of government debt of developed countries provided a dollar-equivalent return of 2 percent during the past five years, and a similar basket of emerging-market debt returned 12 percent.

When the benchmark government bonds of 32 countries in the emerging markets are compared since 2010, Kenya and Nigeria are among the top five, Bloomberg data show.


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Among the bottom performers: Russia lost 36 percent, Brazil lost 29 percent, Colombia lost 26 percent and Turkey lost 23 percent. South Africa is the only big loser among the sub-Saharan countries, mostly because its currency, the rand, declined 51 percent.

South Africa

Part of Africa’s expansion can be explained by its explosive population growth. Since 2000, the population of the 11 largest sub-Saharan countries, measured by GDP, grew 41 percent, to 634 million, or more than twice the U.S.’s 318 million, according to data compiled by Bloomberg. During the same period, India grew 23 percent, the world 18 percent, the U.S. 13 percent and China 7 percent.

That demographic trend won’t abate soon simply because sub-Sarahan Africans are so young. In Nigeria, for example, 43.7 percent of the population is under 15 years old. In Kenya, it’s 42.1 percent; in Ghana, 35.3 percent; and South Africa, 28.3 percent. The world average is 25.8 percent. The percentage of Nigerians older than 65 is 3 percent, compared to 14.5 percent for in the U.S. and 8.3 percent for the world, according to Bloomberg data.

Thus global investors are focused on the region’s new consumers, who have helped the five major industries there outperform their peers in emerging markets since June 2014, when oil began a 58 percent plunge. The sub-Saharan financial industry outperformed its emerging-market counterpart by 11 percent; consumer discretionary companies did so by 18 percent; consumer staples by 5 percent and materials by 16 percent. Only energy companies were losers, underperforming by 0.5 percent.

The sub-Saharan companies include 200 firms in the seven major stock exchanges with a minimum market capitalization of $200 million: South Africa, Nigeria, Kenya, Botswana, Zambia, Ghana and Malawi. Their market capitalization is now $533 billion, greater than Brazil’s $505 billion and less than Italy’s $637 billion. Technology stocks returned the most with 10 percent, followed by communications and consumer discretionary companies, most of which are based in South Africa, the country with the best-performing companies since June 2014.

And while the value of its currency and debt have deteriorated since 2011, South Africa’s GDP of $328 billion is 28 percent greater than it was 10 years ago, when it was equivalent to Denmark and Greece. While Denmark expanded 1.4 percent since 2005 and the Greece contracted 18 percent, South Africa today is a much bigger economy.

Nigeria’s Horrors and Hopes

Still not convinced? OK, look at Nigeria. Oil accounts for 90 percent of its worldwide trade and almost 35 percent of its GDP, and crude oil prices have famously crashed. The currency, the naira, has failed to recover from its own collapse late last year. Yet global investors, convinced there’s a lot more to Nigeria than its commodities, are driving up its bond prices anyway.


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It seems the same could be said of half a continent.

(With assistance from Shin Pei)

Source: Bloomberg

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