Africa Economy Report

Business Africa – South Africa Overtakes Nigeria as Africa’s Leading Economy

South Africa has toppled Nigeria as Africa’s largest economy barely two years after the latter rebased its GDP calculation and claimed top spot.

South Africa was also temporarily relegated to third position earlier in the year when Egypt climbed to claim the second spot.
The ranking is based on the size of the Gross Domestic Product (GDP) of the three countries aforementioned which comprises of total economic activity in a country in a specific period. GDP is measured in the domestic currency of the country, which is the rand in the case of South Africa, the naira in Nigeria and the Egyptian pound in Egypt’s instance.
For purposes of international comparison, the GDP values are converted at the prevailing exchange rate to a common international currency such as the US dollar. Owing to the increase in the exchange rate value of the rand, the US dollar value of the South African GDP increased. Given the change in the value of the country’s currency, its GDP exceeded the value of Nigeria’s GDP which also applies to Egypt.
It is imperative to mention that South Africa’s actual GDP in rand value remains the same. However, the difference between South Africa and Nigeria is not large. At the time the calculation was made, the US dollar value of the South African GDP was some USD301 billion, while Nigeria’s was USD296 billion; while the Egyptian GDP also at current exchange rates is about USD270 billion.
According to Tope Fasua, a Nigerian economist with international repute and renowned social commentator, “these rankings are not sacrosanct and mean little to the people making economic policies and investment decisions. What counts to economic players and observers is the economic viability of these countries. What people are concerned about is will there be economic growth in years to come and if the GDP per capita would increase.”
GDP growth is important because it provides returns for investors in an economy. It also provides an increase in job opportunities for unemployed people and new entrants to the labour market. In the long run GDP growth contributes to increased GDP per capita and increased standards of living in a country.
GDP per capita is measured as the income per person averagely in a country and provides an indication of standard of living. On this basis a country with a small GDP, but equally small population, can have a better standard of living than a large country. Botswana in Africa readily comes as an example.
GDP growth is important because it provides returns for investors in an economy. It also provides an increase in job opportunities for unemployed people and new entrants to the labour market. In the long run GDP growth contributes to increased GDP per capita and increased standards of living in a country.
International investors pay less attention to relative size and economies than they do growth prospects. These are much more important when making investment decisions.
Kenya’s Finance Minister Resists Parliament’s Capping of Borrowing Rates
Kenya’s treasury has recently challenged a decision by parliament to cap commercial lending rates, citing reasons that other proactive measures can be deployed to stave borrowing costs over a period.
The Kenyan parliament made these changes to banking laws in August, with the view to cap commercial interest rates at 400 basis points above the central bank’s policy rate (currently 10.5%). These changes are waiting for presidential approval.
Confirming to Reuters, the Minister of Finance Henry Rotich said that his department wants to improve the transmission of monetary policy signals to commercial rates. Furthermore, the Ministry prefers the creation of a central registry for collateral to cut rates, rather than capping them.
“Our approach in this issue is to deal with the root cause of why interest rates are where they are in Kenya,” the Minister added.
According to the central bank, the average lending rate was 18.2 percent in July, compared with 15.8 percent in July last year. The central bank cut its policy rate to 10.5 percent in May, having left it at 11.5 percent since July 2015.
The Ministry is working to better Kenya Banks Reference Rate (KBRR) to ensure banks price loans correctly. The KBRR (introduced by the government in 2014) has been criticized for failing to help cut interest rates.
“There is more room for refining the KBRR and banks are working on ensuring that the margins are working on ensuring that the margins reflect the best pricing of loans,” the minister said.
Rotich also stressed that the government’s budget deficit for the fiscal year that started in July would be lower than the 9.3% that the parliament approved. The government will also raise money in capital markets abroad to avoid pressurizing local rates by over-borrowing in the home market.
“Our strategy is to diversify our sources of funding so that we don’t borrow heavily domestically,” the Minister concluded.
SOURCE: [Reuters] Ghana on Track to cut Budget Deficit after IMF Deal
Ghana is on the verge of cutting its fiscal deficit by half in the final quarter of the year after a USD918 million aid deal with the International Monetary Fund (IMF), according to Minister of Finance Seth Terkper who recently spoke to pressmen.
This news comes after an air of uncertainty trailed parliament’s rejection of a key component of a deal that was designed to promote fiscal discipline as well as government’s suspension of a planned five-year USD500 million amortizing Eurobond issue previously.
The government delivered a bill to terminate central bank financing of the budget deficit in line with the requirements of the deal. However, earlier in August parliament issued the bill with a change that allowed financing of up to 5%.
Ghana’s public debt dropped from 72% to 63% in the fourth quarter of 2015, while consumer inflation fell from 16.7% in July to 19% in January, Terkper said.
The central bank has predicted that inflation will slow to 8% (plus or minus 2) by fourth quarter of 2017.
Terkper also said, “We are set to halve the deficit from 12% in 2012, and we have also started stemming the rate of growth of the public debt”.
Ghana agreed to the assistance programme in order to reduce inflation, the budget deficit and currency instability.
According to Terkper, the debt stock could increase to 65-66% of GDP on planned disbursements towards the end of the year but will stay below 70%.
Ghana will start pumping oil from a second oil field (Tweneboa-Enyenra-Ntomme or TEN) before the end of August, in addition to its flagship jubilee production which began in 2010.
New wave of African Millionaires emerging…WealthInsights
According to a survey by international company WealthInsights, which conducts research reports and analysis into the world’s wealth sector, Africa’s top-performing cities are also turning into hubs for some of the wealthiest Africans.
“Cairo, Lagos, Johannesburg, those are the top cities for millionaires, interestingly, we’ve done a report looking at the whole spectrum of African cities until 2020 and what we’ve seen is places like Accra, in Ghana, Lagos and also Nairobi, these are cities that we’re going to see growing and increasingly.
“Although Johannesburg will still hold a key position in 2020, there’s going to be a lot of competition in the lower ranks of our city ranking.”
According to the WealthInsights May 2013 World City Millionaire rankings definitions, millionaires, otherwise known as “high net worth individuals” or “HNWIs”, refer to individuals with net assets of one million US dollars or more, excluding their primary residences.
Multi-millionaires, otherwise known as “ultra-high net worth individuals” or “UHNWIs”, are individuals with net assets of 30 million US dollars or more, excluding their primary residences.
A trend that has been found among these top cities is that of majority for the wealth coming from the financial services and mining sectors of the countries.
Johannesburg also has 285 multi-millionaires, Cairo has 145 and Lagos has 123. Wealth sector data is particularly important for private banks, private and luxury jet companies and luxury goods companies as a means of targeting the wealthiest in certain regions.
South Africa’s billionaires include Richemont luxury goods chairman Johann Rupert, the Oppenheimer family and mining magnates Desmond Sacco and Patrice Motsepe.
As more Africans become significantly richer, however, the gap between rich and poor still continues to grow.
“We did some research into South Africa, and we saw that the disadvantaged group equates to 14% of the total ultra-high net worth population and the ultra-high net worth is those of 30 million dollars and above. South Africa is looking at a more equal picture,” said Williams.
Other African millionaires include Nigerian Jason Njoku, founder of iRokoTV, Aliko Dangote of Nigeria’s Dangote Group and Kenya’s Naushad Merali of the Sameer Group.
SOURCE: [CNBC] Nigerian Banks urged to give 60% Forex to Manufacturing Sector
Nigeria’s central bank has asked commercial lenders to allocate 60% of their foreign exchange purchases to manufacturers, in a bid to boost their ability to pay for imports and spur the economy.
Widespread dollar shortages, caused by a fall in oil revenues, have hit manufacturers’ ability to import raw materials and spare parts, forcing many plants to shut down.
The central bank said in a circular it wanted encourage the production of local goods by asking banks to allocate more hard currency to industrial firms.
“Authorized dealers (banks) are hereby directed to dedicate at least 60% of their total foreign exchanger purchases from all sources to end-users strictly for the purposes of importation of raw materials, plant and machinery,” the apex bank said in a circular in August.
In June, the bank abandoned its naira peg to the dollar, allowing the currency to weaken by 40% in a bid to attract more foreign investment. But so far trading in the official foreign exchange market has been limited as those with dollars prefer to sell them for a higher rate on the black market.
Nigeria’s economy contracted in the first quarter and officials have said recession is likely.
Japan Expanding Business in Africa
The dynamic and growing African market continues to draw suitors across the globe with the latest upsurge in investments coming from another of the Asian Tigers, Japan.
The Japan External Trade Organization (JETHRO), promotes business, specifically two-way trade and investment between Japan and the rest of the world; with 74 offices abroad as well as 46 within Japan, including a research institute. Their offices in Africa are located in South Africa, Kenya, Nigeria, Cote d’Ivoire, Ethiopia, Egypt and Morocco.
JETHRO Addis Ababa is the seventh office on the continent which was inaugurated earlier in July with the Prime Minister of Ethiopia H.E Hailemariam Desalegn, and Minister of Ethiopia H.E Tedros Adhamon.
Messages of bi-lateral trade and cooperation were delivered by the Japanese contingent led by their Prime Minster H.E Shinzo Abe and the Minister of Economy, Trade and Industry the Hon. Motoo Hayashi; and the Chairman and CEO, Japan External Trade Organization, Hiroyuki Ishige.
The number of Japanese companies in Africa has steadily increased over the years. As of October, it was 687. However, given that across the globe there is a total of 71, 000 Japanese companies operating internationally, that figure represents less than one percent. To give some perspective, the number in Asia is about 50, 000.
According to Hiroyuki Ishige, “We believe that establishing multiple relationships is necessary, from conventional fields such as resources, automobiles and infrastructure to new fields such as consumer products that enhance the quality of life, food, medical care and services.
“It must be recognized that when we refer to Africa, we are referring to a region of more than 50 countries and an area that is bountiful in diversity. While JETRO currently has its offices in those countries with the highest concentration of Japanese companies, we are now expanding our activities in a manner tailored to the specific circumstances of each African country and region.”
Japanese companies are steadily shifting their gaze toward Africa and JETRO stand at the vanguard in leading the way to emerging and exciting new partnerships.
Oil & Gas
Vaalco Energy resumes production in off-shore Gabon
A United States of America independent energy company based in Houston with principal acquisition, exploration and production of crude oil has announced its resumption of production in Gabon.
Vaalco Energy whose company’s properties and exploration acreage are located primarily in Gabon, Equitorial Guinea and Angola in West Africa; has the secondary electric submersible pump (ESP) in the Avouma 2-H well on the Avouma Platform offshore Gabon in the Etame Marin Permit was recently started and the well is now producing at a stable rate.
As previously announced, the primary ESP failed in the Avouma 2-H well, and prior to attempting to start secondary ESP, VAALCO and the manufacturing and installer of the ESP worked closely to optimize the startup procedure. The lower pump was successfully started in August and performance is stable with the well producing approximately 1,850 barrels of oil per day (BOPD) gross or 450 BOPD net to VAALCO. The well was producing approximately 2,700 gross BOPD or 600 BOPD net to VAALCO prior to the first ESP failure. VAALCO is currently flowing the well at a lower rate while monitoring the performance of the ESP.
Cary Bounds, VAALCO’s Chief Operating Officer commented, “we are pleased to have restarted production from the Avouma 2-H well and will continue to monitor the performance of the secondary ESP. We are conducting a detailed investigation of ESP failures encountered earlier this year on the platform and hope to restore production from two shut-in wells in the fourth quarter. The upcoming Avouma ESP replacements will utilize a more cost effective hydrolic workover unit that is being mobilized to the platform. The ability to restart production from the Avouma 2-H validates our strategy of installing primary and secondary pumps in all of our platform wells.”
SNE Oil Field Commercial Viability Confirmed
On the heels of last year’s success and the results of the appraisal programme of the SNE oil field offshore Senegal in West Africa, FAR Limited, has assessed that the Minimum Economic Field Size for output capacity has been attained.
Cairn Energy PLC, the operator, had previously assessed the Minimum Economic Field Size for the SNE project to approximately 200 million barrels.
Earlier in August, FAR disclosed upgraded SNE Contingent Resources estimates independently certified by RISC Operations Pty Ltd (“RISC”). FAR’s revised contingent resource estimates on a 100% basis were:
1C (P90) 348 MMBBLS; 2C (P50) 641 mmbbls; 3C (P10) 1128 mmbbls
14% and 26% increase in 2C and 1C Contingent Resources respectively.
The SNE development is well placed to benefit from cost deflation resulting from the current low oil price environment. Over the last 24 months offshore drilling and subsea costs have decreased by in excess of 20%. Opportunities to further reduce well and subsea costs through design optimization and standardization will be investigated. The current market also offers potential, cost effective FPSO conversion opportunities that could also enable accelerated production.
FAR’s development concept is based on 70-80 development wells through field wells through field life (50% producers, 50% injectors) with an average Estimated Ultimate Recovery (“EUR”) per well of 8mmbo (based on total wells). FARS’s first phase development requires 20-25 wells. Reservoir and Wells Basis of Design have been completed and various well types established which are mostly horizontal 1, 500m laterals or high angle deviated wells.
FAR Managing Director Cath Norman said, “FAR’s recently released third upgrade to the SNE oil field contingent resources and preparation of a detailed concept development plan support FAR’s view that SNE is a world class oil field that can support a commercial development.
“FAR has assessed that the SNE field has surpassed the Minimum Economic Field Size and the project is at the Pre-FEED stage with development planning underway. The focus is on optimizing and scaling a first phase development project.
“The project is well positioned to benefit from cost deflation. Development and operation costs estimates for the concept development are relatively low, making the break-even oil price very competitive in the current oil price environment at less than USD40 per barrel.
“Further appraisal drilling expected to start in late 2016 will target understanding the connectivity of the upper reservoirs and help optimize and scale the development.”