Is Africa’s boom over?

Lesotho Times - - Business -

JOHANNESBURG — Dis­ap­point­ing growth in Africa’s two big­gest economies has high­lighted the role of China in the ex­pan­sion of re­cent years, now that China’s own econ­omy is slow­ing.

Ex­pec­ta­tions of more than 4 per­cent growth in Nige­ria, Africa’s largest econ­omy, are prob­a­bly now too high, and South Africa’s prospects also look in need of re­vis­ing.

Sec­ond-quar­ter growth for both coun­tries was worse than the most pes­simistic fore­casts - in South Africa’s case, by the big­gest mar­gin in at least half a decade of Reuters polls.

Their slow­down is sim­i­lar to other emerg­ing mar­ket economies in Latin Amer­ica and Asia, and a sign that China’s ap­petite for raw ma­te­ri­als is now wan­ing.

On Tues­day, the latest pur­chas­ing man­agers’ data showed the weak­est growth in 6 1/2 years for small- to mid-sized China man­u­fac­tur­ers and the weak­est in three years for larger en­ter­prises.

Econ­o­mists have long been aware com­mod­ity-ex­port­ing coun­tries would be trou­bled by China’s re­bal­anc­ing to a more con­sumer-driven econ­omy. They have been warn­ing since the shift be­gan that in­vestors would have to make do with slower growth.

“With growth slow­ing in Nige­ria and col­laps­ing in South Africa, our pre­dic­tion that 2015 would be Africa’s most dif­fi­cult year so far this cen­tury seems, un­for­tu­nately, to be play­ing out,” said John Ash­bourne at Cap­i­tal Eco­nom­ics.

“The key point is that high oil prices over the past decade may have led both in­vestors and pol­i­cy­mak­ers to ig­nore the deep struc­tural prob­lems within Nige­ria’s econ­omy. Now that prices have fallen, those flaws have been ex­posed.”

In ad­di­tion, the Fed­eral Re­serve ex­pects in­fla­tion to ac­cel­er­ate, mak­ing an in­crease in US in­ter­est rates more likely. But many emerg­ing mar­ket pol­i­cy­mak­ers say they are ready for a US rate rise, and they are now fo­cused on deal­ing with a slow­ing Chi­nese econ­omy.

Fun­da­men­tals re­main in­tact Two months ago, the Reuters long-term con­sen­sus on Nige­ria was for 4.4 per­cent growth this year. But a drop to 2.35 per­cent in the sec­ond quar­ter - from a record high of 8.6 per­cent in the fourth quar­ter of 2010 - puts that at risk.

South Africa, the con­ti­nent’s sec­ond-big­gest econ­omy, shrank 1.3 per­cent in the sec­ond quar­ter - worse than any of the 21 econ­o­mists polled by Reuters had pre­dicted.

That makes the con­sen­sus for 1.9 per­cent growth this year, al­ready weak by emerg­ing mar­ket stan­dards, look too op­ti­mistic.

Razia Khan, Africa re­search head at Stan­dard Char­tered, says in the next decade, the struc­tural driv­ers of Africa’s growth - ris­ing de­mo­graph­ics, greater rates of ur­ban­i­sa­tion, pro­duc­tiv­ity gains, growth of fi­nan­cial mar­kets, will re­main in place.

“How­ever, in the very near fu­ture, ex­ter­nal head­winds -de­te­ri­o­rat­ing risk ap­petite and weaker com­mod­ity prices - may well take the shine off growth trends,” she said.

The World Bank fore­casts GDP growth in sub-sa­ha­ran Africa will slow this year to 4.2 per­cent, down from an av­er­age of 6.4 per­cent dur­ing 2002 to 2008.

Even af­ter a decade of growth, sub-sa­ha­ran Africa’s man­u­fac­tur­ing re­mains weak. Ex­ports from the re­gion more than quadru­pled to $457 bil­lion in the decade to 2011, but man­u­fac­tured goods made up just $58 bil­lion of that.

Africa could have re­bal­anced its own economies, by shift­ing from com­mod­ity-led growth to in­ter-re­gional trade. But ne­glected in­fra­struc­ture looks set to keep the con­ti­nent re­liant on com­modi­ties.

“Africa re­mains largely a pri­mary goods ex­porter. There are growth op­por­tu­ni­ties to be found in for­ward-in­te­grat­ing its largely pri­mary in­dus­tries,” said Rafiq Raji, an economist at macroafricain­tel­li­gence.com, a re­search ser­vice based in La­gos.

— Reuters

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