October - December 2015 •
The Lion King
• 13
2016 Outlook
|
Business
2006), it has sent a strong positive
signal on the recovery of the U.S.
economy; be it a figment or reality,
tighter interest rate in the world’s glob-
al financial centre will have notable
implications for emerging and frontier
markets currencies, which are already
pressured.
Interestingly, the ECB alluded to the
protracted weakness of the European
economies, thus further surcharging
depositors (as repo rates was reset
to -0.3%) and extending the stimulus
programme (through which ECB buys
€60 billion of assets each month) by
additional six months. China is flex-
ing its fiscal flexibility muscles; back-
ing expansionary fiscal actions with
its huge external reserve; which is the
pride and privilege of a country that
saved for the rainy day – an often lost
opportunity in Africa.
Beyond the domestic challenges of
infrastructural deficits, poor gover-
nance, weak institutions, youth unem-
ployment and insecurity, the vulner-
abilities of Africa to the global eco-
nomic weakness have exacerbated
income levels of all economic agents;
government, corporates and house-
holds. Africa lives a life of depen-
dency, a paradox which exposes it to
the harsh external shocks, in the form
of currency weakness, capital flight,
cost-push and imported inflation and
faltering revenue.
In line with waning economic activities
in China (with GDP growth easing to
a decade low), imports have equally
slowed, declining 8.7% in November
2015; the 13th consecutive weakness
that underscores the weak Chinese
demand for Africa’s commodities.
With lower demand from China, not
only will commodity prices remain
weak for some time, export volumes
may moderate further; a double
whammy which continue to pressure
foreign currency earnings and over-
all revenue of African countries. With
lower prices and demand, commodi-
ties countries and their currencies are
out in the cold; that’s the lingering
challenge for Africa in the New Year.
Whilst consensus analysts’ forecast
suggests a 2016 recovery in crude
oil price towards the USD55-60pb
range, I am not as convinced in the
demand-supply equation that informs
most predictions. Notably, most pro-
jections are based on expectation
of reduced supply and not so much
of demand growth. Whilst reckoning
with the lower rig counts in the U.S.
and softer production outlook in other
Non-OPEC producers, the stalemate
of OPEC members remains a strong
downside risk.
Anyway, my optimism is more on
the consensus that there is only one
way for future crude oil price trend;
from the current 7-year low price of
USD40pb, the risk of significantly lower
price is minimal and it should only
trend upward. So, the oil exporters
in Africa may have seen their worst
days. Oil importers like Kenya, South
Africa and Senegal, which like the low
crude oil price may have to brace up
for higher crude oil price in the future;
a looming pressure point which may
worsen the fundamentals of these
economies, particularly as general
outlook on other commodities (being
exported by these countries) remain
bearish. Incidentally, the fiscal and
broad macroeconomic challenges in
most oil importing countries may be
protracted and exacerbated should
crude oil price recover like most opti-
mistic analysts have predicted.
Does it then mean that Africa is just
half empty and may just not offer
as much opportunities as one should
expect in 2016. I think cynics like myself
may mislead the “innocent public”, if
not being careful, as Africa is rather
half full than empty. Interestingly, for
those conversant with Africa’s invest-
ment and economic cycles (and per-
haps Asia, emerging Europe and even
the Middle East), the best opportu-
nities are in the challenging times,
when government, corporates and
households often wilfully reckon mis-
takes and take painful lessons to once
again jump start the recovery and
boom.
Having read and listened to a num-
ber of commentaries on the African
economy, I now believe that I am not
alone in my thought that most African
governments and their people have
learnt some crucial new lessons in
the past three years and may return
to the early-2000 mode of pushing
hard but necessary reform measures
to ameliorate the continent’s pov-
erty. Hopefully, as politicians face stiff
opposition and demand from elector-
ates, there should be some prudence
and sanity in governance.
Whilst I stand to be corrected, Africans
have never been so entrepreneurial in
thought and action. There is increas-
ing shift from the last decade of
“baby boomers”, with new orientation
towards building quality households.
The level of formal education remains
very low and shallow but speaking to
a few people (not in any way qualified
to be a sample), the impact of infor-
mal education arising from new ambi-
tions and healthy communal competi-
tions has been phenomenal. Despite
the challenging environment, youths
are registering small businesses daily
with self-motivated drive to succeed.
Interestingly, successful entrepreneurs
are increasingly giving back to the
society, through financial, and more
importantly mentorship and network-
ing support. The wide spread desire for
Africa’s development seems to have
triggered “a new wave of Private
Social Responsibility”, which is strongly
challenging the CSR of corporates. My
optimism keeps rising with a number
of salient structural shifts that I believe
will positively shape the future of Africa
and if at all the “economic theory of
convergence” will be a reality, Africa
may not be too far away from the very
beginning!
