Kathy Gibson is at Deloitte’s Africa in 2019 Outlook in Sandton – It may be difficult to be optimistic about the outlook for Africa in 2019, but there are many opportunities to kick-start economic growth.
This is among the conclusions from Deloitte’s Africa in 2019 Outlook conference taking place this morning.
South Africans tend to talk about Africa as if it is a different place – as if we aren’t part of the continent.
The reality is that Africa is a fragmented place, it is extensive and complex, says Dr Martyn Davies, MD: emerging markets and Africa at Deloitte Africa
“It is a heterogenous jigsaw of disparate economies sharing a single land mass,” he says. “We need to start adopting a more granular view.”
Going into 2018, the leading themes for Africa were US president Trump, the importance of macro indicators, divergent growth patterns across regions, resource-driven dependencies, the imperative of industrialisation, old leaders of young countries, the way ahead for Zimbabwe, Ramaphoria, and the role of small states leading African reform.
There was a definite air of optimism just one year ago – but this is not strictly true at the dawn of 2019.
“At this time in 2018, I was optimistic about what was going to happen in Africa,” says Lwazi Bam, CEO of Deloitte Africa. “We went into 2018 very excited.
“So last year it was easy to conclude I was optimistic. This year I am ambivalent.”
Issues like the DRC election, the situation in Zimbabwe and unrest in South Africa are not promising, Bam says.
“There are a lot of common priorities in African countries: education, infrastructure, diversifying the economy – those are standard.”
He points out that education, for instance, is a key priority for most countries, so significant budget gets allocated to it. “The expectation would be that education standards would improve over the year, and we would make progress.
“The Mo Ebrahim Index indicates otherwise; the average education level shows that since 2013, education standards have declined,” Bam says.
“So the problem has been adequately diagnosed and the resources allocated, but the outcomes are still not what we desire. This is not something we can live with.”
Improving education would have a knock-on effect of creating a tax base of productive middle class citizens, and innovative entrepreneurs.
The same problems are seen in issues relating to infrastructure, he adds, where budget infrastructure improvements goes unspent.
“So for me the focus has to be on how we improve our delivery capacity,” Bam says. “We also need to determine how can the private sector assist states to deliver on these mandates.”
Deloitte has presented seven predictions or themes that it believes will have a major effect on Africa’s outlook for 2019.
Driving the first of these themes is the US’s new African strategy that seeks to counter China’s dominance on the continent.
Dr Davies points out that the combined spend of Chinese finance in Africa is significant – in the last few years, the mega trend has been Chinese investment into Africa.
The US is now looking to Africa and other emerging markets in an active bid to challenge the Chinese moves.
“Will geo-strategic competition result in infrastructure spend improvements?” Dr Davies asks.
Rising government debt is the second major trend, with most African countries heavily indebted at about 57% debt-to-GDP.
And this risk is underpinned by low tax bases and volatile currencies, so serviceability of this debt is in question.
The third theme is fast GDP growth. But we need to look deeper into these figures and question what it really means, Dr Davies says.
With African countries among those with the fastest GDP growth, but we need to ensure that it is inclusive, he adds.
This year will see a number of Africa elections, Dr Davies adds, and this will drive the fourth theme: the year of politics.
“Politics determine economics in frontier markets.”
The fifth theme could see 2019 become the year of structural reform in Nigeria and South Africa, Dr Davies says.
“Kenya is firing, but Nigeria and South Africa are in structural limbo. Many of the impediments could be removed post-elections.
“But will we do what is necessary to invigorate growth? Will the politics allow it?”
The issue of demography in maturing emerging markets – the idea that demography is destiny – needs t be understood, Dr Davies says in relation to the sixth theme.
In Africa, the median population age is mid- to late-teens. Young people drive growth, so the challenge is to get our youngsters into jobs and contributing to the economy.
Following from this, Dr Davies believes we need to recategorise emerging markets so they are not all painted by the same brush. “Even in the context of Africa, you can’t equate, say, Malawi to South Africa. We need to be more granular.”
The final theme that Dr Davies believe will be significant in 2019 is Ethiopia. He says it is a strong growth story – with the caveat that this will be true as long as society holds.
It is led by a young, forward-thinking president who is driving a reformed agenda, infrastructure investments, opening the economy and a drive to privatisation.
At 7% GDP growth, Ethiopia will double its economy every 10 years, Dr Davies points out, and this is driven by investment into fixed infrastructure.
Interestingly, South Africa’s growth peaked in 2007/2008 – exactly when soccer stadiums, airports and highways were being built – reinforcing the fact that fixed infrastructure investment drives economic growth.
“So Africa is on the emerging market capital periphery, but we need to drive structural reform home in 2019,” Dr Davies says.
“I truly believe countries have a choice: to grow or not to grow. We need to take very proactive choice to grow our economies to enhance structural reform in 2019,” he adds.