Africa’s four rapid-growth markets

Ernst & Young has recently identified four African countries – Egypt, Ghana, Nigeria and South Africa – as rapid-growth markets.

In its Rapid-Growth Markets Forecast report, Ernst & Young looked at 25 countries with economies and populations of a certain size that display strong growth potential and are, or could be, strategically important for business.

“Rapid-growth markets will account for 50% of global GDP by 2020 when measured at purchasing power parity. They will also account for 38% of world consumer spending and 55% of world fixed capital investment,” says the report.

See Ernst & Young’s overview of Africa’s four rapid-growth markets below:

Signs of a slow recovery amid political uncertainty

Uncertainty about the political outlook will continue to weigh on the economy, though there are now signs of a slow recovery. With tourism and foreign investment very weak, GDP fell by over 4% on the year in the 1st quarter of 2011, but there was a 0.4% rise on the year in the 2nd quarter, which delivered overall 2010–11 GDP growth of 1.8% – a little better than seemed likely at one stage. Assuming no further serious unrest, and with tourism starting to pick up slowly, GDP growth is expected to recover to about 3.5% in 2011–12, though the risks are on the downside in the near term. But the economy’s underlying potential remains intact and we expect growth above 5.5% over the medium term.

Oil output to deliver 14% growth this year, with inflation slowing

After solid growth of 7.7% in 2010, the start of oil production at the end of 2010 is expected to lift GDP growth to around 14% this year. While Ghana will only be a small producer in global terms – with output at 120,000 barrels per day this year – there will be a sizeable impact on its public finances and balance of payments. And with a record cocoa harvest expected and surging gold prices, coupled with ongoing oil-related FDI inflows, growth is expected to remain buoyant in 2012, albeit slowing somewhat to about 8%.

High oil prices and prospects for reform underpin solid growth

GDP growth accelerated to 7.9% in 2010. The pace slowed in the 1st quarter this year, but we still forecast 2011 growth of about 7%, with oil output rising by 10% and the expected 37% climb in oil prices leading to booming revenues, enabling high government spending.

To support growth over the medium term of around 6%, Nigeria will need to pursue structural reforms – such as improving the efficiency of the oil and gas industry, including privatisation of state-owned power companies in an attempt to end Nigeria’s chronic power shortages. This, in turn, will help to bolster investor confidence, despite some security concerns following the bomb attack on the UN building in Abuja.

South Africa
Growth slows as domestic demand weakens

Consumer spending, the key driver of growth in South Africa, has weakened significantly over the last two months. Retail sales volumes grew by just 1.3% month on month in July, and domestic vehicle sales contracted by 3.7% year on year in August. The weak data and the deteriorating economic outlook mean we expect consumption to grow by 4.4% in 2011, and 3.6% in 2012.

The slowdown in global growth has weakened international demand for South Africa’s goods, with exports in US dollars estimated to have contracted by 7.8% month on month in July. Export growth is likely to be subdued for the rest of the year – with overall growth of 4.5% in 2011 – before recovering to 8.6% in 2012. As a result of slowing demand and strikes in several industrial sectors, the supply side of the economy weakened considerably at the start of the 3rd quarter 2011, with manufacturing and mining production contracting by 6% and 4.3% respectively month on month in July. Coupled with this, the Manufacturing Purchasing Managers’ Index (PMI) remained below 50 at 46.2 in August, indicating that the sector is still contracting. As a result of weak domestic demand and the deterioration in the global outlook, we expect GDP to grow by 2.9% in both 2011 and 2012.