Following deliberations at the World Economic Forum in Davos, Switzerland last week, there has been increased focus on the acceleration of developed-market GDP and its impact on emerging market economic growth.
“An interesting development from the Davos deliberations is the fact that six sessions were devoted to Africa. Its potential as a foreign investment destination is being given serious consideration by both the developed and emerging markets,” said Ashburton Investments chief investment officer for South Africa, Paolo Senatore.
“Sub-Sahara African economies have, in general, achieved GDP growth rates of around six per cent. It is forecast that these growth rates can be maintained for the foreseeable future. Over time this growth will largely be driven through increasing infrastructure and consumption expenditure.”
The International Monetary Fund’s managing director, Christine Lagarde, also believes that Africa is most certainly not falling off the global agenda.
“When I look at my IMF forecast, that’s where you [Africa] have the second fastest growth rate in the world. Some of Asia is developing a bit faster but the second fastest growing part of the world is actually Africa, particularly sub-Saharan Africa. Africa’s had the visit of the Japan prime minister. The US president has announced an African summit shortly in Washington,” Lagarde told CNBC Africa.
“Africa is very much on the map and in the mind of a lot of people, policy makers as well as corporate leaders. My job is to both celebrate but also warn against the risk of complacency and the potential risks that we see on the horizon. [It’s] more positive but let’s be cautious.”
South Africa, which according to the World Bank is currently the continent’s largest economy, is expected to face a number of tough economic challenges going forward.
“Some of the factors hindering the potential GDP growth of the South African economy are: commodity prices, labour policies, electricity, rail infrastructure and the lack of a technologically advanced manufacturing sector,” Senatore indicated.
“Added to South Africa’s challenges, the country currently suffers from the inadequate generation of electricity to sustain a growing economy. This lack of increased electricity supply places a ceiling on economic growth. However, the Medupi power station is scheduled to come into partial production towards year end. This development would alleviate the current supply shortage.”
One of the concerning topics for the country from the World Economic Forum in Davos, Switzerland last week was the session on ‘BRICS in Midlife Crisis’ and Sentore explained that labour polices in South Africa specifically, are, in a developed market context, restrictive.
“Recently the South African labour market has been placed in turmoil through strikes in the mining, manufacturing and agricultural sectors. Moreover, the lack of a rapid and efficient rail network is also a barrier to potential growth,” he said.
“Currently, coal and iron-ore exports are constrained by insufficient rail capacity. The lack of a ‘hi-tech’ manufacturing sector in South Africa primed to take advantage of the global demand for television sets, tablets, computers and smart phones is also a deterrent to potential growth.”
He added that an accelerating global growth outlook however, could be mildly supportive for commodity prices for South Africa.
“Given the weak rand, any increase in dollar commodity prices would increase revenues from the mining sector and help reduce the current-account deficit. Additionally, acceleration in the developed world, especially the United Kingdom and Europe, would benefit exports through the demand for manufactured products especially in the vehicle manufacturing sector,” Sentore said.
“The South African Government has produced a well-considered economic blueprint for South Africa termed the ‘National Development Plan’. To achieve success the plan requires the buy-in and implementation by all stakeholders. Should this buy-in be realised, then the country may achieve higher levels of growth and join its sub-Saharan neighbours who are attaining growth rates of around six per cent.”