Africa’s Biggest Economies: How They Fared In 2012

With a population of approximately 1.07 billion, comprising 54 countries, which are richly endowed in mineral resources, Africa’s economic rhythm has quickened, vibrating with a new commercial enthusiasm. The rate of return on foreign investment is higher in Africa than in any other developing region, corroborating the fact that it is the fastest growing continent in the world. This is evident as seven of the world's 10 fastest-growing economies are in Africa. Telecommunications, banking, and retailing are flourishing. Construction is booming. Private investment inflows are on the rise. The latest global recession has put Africa’s economy in the front burner as its growth rate has surpassed that of the Asian tigers (Hong Kong, Singapore, South Korea and Taiwan).

A recent report by the African Development Bank projected that, by 2030, most African countries will attain lower-middle to middle-class majorities, and that consumer spending will explode to about $2.2 trillion. The African economy is christened the “Lion Market,” and has attracted over $160 billion from China alone in 2012. This created a renewed interest within the international agencies in the region’s emerging markets. Recent advancements in African economies have been due to the growth in sales of commodities, services and manufacturing.  The growth rate of 4.9% experienced in Africa is higher than the global growth rate of 3.7% in 2011. According to a study by the United Nation in 2011, “Economic diversification holds great potential to increase Africa’s resilience and would contribute to achieving and sustaining long term economic growth and development in the continent.”

The Economic Diversity Of The Big Five
This article attempts to highlight the growth path of Africa’s largest economies and what lies ahead, and how Nigeria has fared amongst its contemporaries in the continent. The economies analysed are; South Africa, Egypt, Nigeria, Algeria and Morocco.

The International Finance Corporation (IFC) carried out a survey on doing business in 185 nations, and the five big economies in Africa were ranked as stated below.

South Africa –The Largest African Economy
South Africa is the only country in Africa that is part of the BRICS (Brazil, Russsia, India, China and South Africa). Study shows that the BRICS could become one of the four most dominant economies by 2050. These countries encompass over 25% of the world's land coverage and 40% of the world's population and hold a combined Gross Domestic Product (GDP) at Purchasing Power Parity (PPP) of $18.49 trillion.

With an economic size of about $577 billion, South Africa is ranked as the largest African economy. Its close linkage with the global economy has suffered from the worsened economic lull in Europe and China, the two main export destinations of the country. Thus resulting in weakened growth prospects, lower fiscal revenues, volatile valuation of the rand, and dampened external financing.

Headline consumer price index (CPI) inflation has been within the target band set by the South African Reserve Bank of 6% since May 2012, despite cost push pressures emanating from external factors such as food and oil prices. Core inflation (excluding food, oil and energy prices) is well contained and is projected to peak at 4.9% by fourth quarter, 2012. This is an indication that demands side pressures are expected to be moderate. However, at 24.9%, unemployment remains the dominant economic challenge.

South Africa’s chronically low national savings rate declined from 15.2% of GDP in first quarter (Q1) to 14.1% of GDP in second quarter (Q2), 2012. Its high current account deficit rose from 4.9% of GDP in Q1 to 6.4% of GDP in Q2, 2012 funded mostly through volatile and short-term portfolio flows, making the economy susceptible to sudden changes of investors' risk aversion. Manifestation of this particular risk could result in a large correction in the current account deficit, which, in turn, may constrain domestic investment and lead to lower GDP growth.

The Capital Economics, South Africa’s GDP Tracker, suggests that the economy slowed sharply in the third quarter of this year. Growth dropped to 1.5% in third quarter (Q3) from 3.2% in Q2, 2012. This would leave the economy on course for a full-year expansion of 2.3% in 2012, the slowest pace of growth in four years.

Egypt –Second Biggest Economy In Africa
With about 82.5 million population and an economy size of approximately $525 billion, Egypt is ranked second biggest economy in Africa. It has one of the most developed and diversified economies in the Middle East. Agriculture, industry and services represent almost equal rates in national production.  However, despite the high levels of economic growth over the past few years, living conditions for the average Egyptian remain poor. This was aggravated by the recent unrest as it has hit tourism and foreign direct investment, two key sources of foreign reserves.

The reserves have been eroded from $50 billion to $16 billion. Growth plummeted from 6% to 1.8% following Egypt’s uprising in 2011, pushing millions deeper into poverty. Unemployment has risen to 12.6%. Foreign investors were spooked and have been slow to return. Foreign direct investment (FDI) has fallen to $218 million in the first quarter of 2012, compared with $2.1 billion in the corresponding period of 2011.

Official data shows that Egypt's economy shrank by 4% in the first quarter of 2012 compared to the previous quarter. Gross domestic product at current prices dropped from $377.3 billion in December 2011 to $362.5 billion in March 2012. Total investments fell by 16% to $56.1 billion in Q1, 2012. Overall, the economy has grown by 1.8% in the 2012 financial year. This figure is still below the 2.3% growth seen over the same period in 2011 fiscal year.

Uncertainties continued to weigh on economic activities and the FDIs, keeping GDP growth just below 2% in the third quarter of 2012, bringing fiscal and external deficits to a record high of 83.6% of GDP.

Nigeria –The Preferred Destination For Investment In Africa
Nigeria has become the preferred destination for investment in Africa with an economy size of about $247 billion coupled with its growing population of over 160 million. It is ranked first in the top five host economies for foreign direct investment in Africa, accounting for over 20 of total FDI flows into the continent. The Investment Climate Reform Programme has helped to attract over ₦6.8 trillion local and foreign direct investments within the first ten months of 2012.

Successive governments in Nigeria have since independence, pursued the goal of structural changes without much success. The growth dynamics have been propelled by the existence and exploitation of natural resources and primary products. Initially, the agricultural sector, driven by the demand for food and cash crops production was at the centre of the growth process, contributing 54.7% to the GDP during the 1960s.  The second decade of independence saw the emergence of the oil industry as the main driver of growth.  Today, Nigeria is a mono-economy that is highly dependent on oil which accounts for 75% of government’s revenue.

Economic growth has risen substantially, with annual average of 7.4% in the last decade. But the growth has not been inclusive, broad-based and transformational. The implication of this trend is that economic growth in Nigeria has not resulted in the desired structural changes that would make manufacturing the engine of growth, create employment, promote technological development and induce poverty alleviation. Available data has put the national poverty level at 54.45%. Similarly, there has been rising unemployment with the current level put at 23.9 by the National Bureau of Statistics (NBS).

The Nigerian government continues to implement its liberalisation programme, reducing spending on subsidies, increasing investments in key infrastructure and opening the door to the privatisation of the power sector. Foreign direct investment surged in 2011, reaching $8.7 billion, up from $6.1 billion for the previous year. The economy grew by 7.69% in 2011, a slight decline from the 7.87% recorded in the previous year. Industry, retail and telecommunications in particular are all seeing increasing amounts of FDI. Recent reforms have put Nigeria back on track towards achieving its full economic potential as her GDP at purchasing power parity has risen to $418 billion in 2011 from $390.6 billion.

Provisional data from the NBS has revised the real GDP growth for fiscal 2012 downwards to 6.61% from the earlier projection of 6.85%, indicating that the economy is encountering growth challenges not previously anticipated. The estimates revealed a real GDP growth rate of 6.48% in the Q3 of 2012, up from 6.39% in the Q2 but lower than the 7.37% recorded in the corresponding period of 2011.

…Banks’ Credit, Gross External Reserves
In the Q3, 2012, banks’ credit to the private sector rose by 1.03%. Similarly banking system’s claims on the core private sector rose by 1.04%. Foreign exchange inflow rose by 44.8% and is 37.3% above the level in the corresponding period of 2011. The development was accounted for by the increase in receipts from its oil and non-oil components. Gross external reserves as at November 27, 2012 stood at $44.32 billion, indicating an increase of 17.16% above the $36.71 billion recorded at the end of the preceding quarter.

The non-oil sector remains the major driver of the economy, recording 7.55% growth in the Q3, compared with 8.76% in the same quarter last year. The contribution of oil to the overall economy fell to 13.42%, from 14.28% over the same period, although oil production actually rose to 2.52 million barrels per day (bpd) over the period, from 2.38 million bpd the previous quarter. Inflation rose marginally in October, to 11.7%, compared with 11.3% in September. Food inflation accounted for a large portion of the increase, rising to 11.1%, compared with 10.2% increase in September.

However, due to the fact that the peak of the flooding was towards the end of the third quarter, the impact on agricultural production was less observed during the quarter. It is conceivable that the full impact of the floods will be more visible in Q4 2012 and Q1 2013. Nevertheless, the NBS’ preliminary analysis suggests that the impact of flooding on agricultural GDP may not be as severe as feared.

Algeria –Hydrocarbon Driven Economy
The Algerian economy is largely driven by hydrocarbon and it is estimated at $275 billion. With 10% of its population under employed, Algeria’s 37 million population has unemployment rate of 21.5%. Hydrocarbon in Algeria accounts for approximately 60% of budget revenues, 30% of GDP, and over 95% of export earnings. Algeria is the sixth largest exporter of gas and is ranked 10th in natural gas reserves in the world. It has a $183 billion in foreign reserves and a large hydrocarbon stabilisation fund. Its external debt is extremely low at about 2% of GDP. Efforts are ongoing by the government to diversify the economy by attracting foreign and domestic investments outside the energy sector.

Year-to-date, the economy has grown by 2.5%, supported by a buoyant non-hydrocarbon sector bolstered by public spending. The current account surplus is expected to reach 8.2% of GDP at the end of 2012, with higher hydrocarbon prices offsetting lower export volumes. At the end of third quarter 2012, foreign-exchange reserves remained steady and external debt levels very low at $4.66 billion. The domestic credit provided by banking sector (% of GDP) in Algeria was last reported at -4.70 in 2011, according to a World Bank report published in 2012. The oil stabilisation fund, net of public debt, hit 26% of the GDP.

However, inflation surged to 8.4% in Q3, 2012. Vulnerability to hydrocarbon prices has consequently increased, with the breakeven price reaching $121 per barrel at the end of the third quarter 2012. Youth and female unemployment rates remain high, at 21.5% and 17%, respectively in the period under consideration.

Morocco –The Fifth African Economy By GDP
Morocco’s $99 billion liberal economy is adjudged to be the fifth African economy by GDP (PPP). The country has witness steady economic growth with a 4.9% year-on-year growth. Economic growth is far more diversified, with new service and industrial sectors development. Morocco's economic growth eased to 2.6% in the second quarter from 2.8% in the first quarter of 2012 as weakening agriculture and consumption growth took their toll on the economy.

After growing close to 5% in 2011, the GDP growth is expected to ease to 3.4% in the fourth quarter of 2012 as bad weather slashed agricultural output and as the euro zone crisis hit the tourism industry. The country’s central bank says the GDP growth would stand at less than 3% in 2012.

Over the first half of 2012, while the agricultural sector suffered from insufficient rainfall resulting in 9% drop in production, the non-agricultural GDP increased by 4.7%. However, Morocco still depends, to an inordinate degree, on agriculture. The sector accounts for about 14% of GDP but employs 40-45% of the Moroccan population (32 million population). With a semi-arid climate, it is difficult to assure good rainfall and Morocco's GDP varies depending on the weather.

In general, the Nigerian economy has grossly underperformed relative to her enormous resource endowment and her peer nations. It has the 6th largest gas reserves and the 8th largest crude oil reserves in the world. It is endowed in commercial quantities with about 37 solid mineral types and has a population of over 160 million. Yet, economic performance has been rather weak and does not reflect these endowments.

Compared with the emerging Asian countries, notably, Thailand, Malaysia, China, India and Indonesia that were far behind Nigeria in terms of GDP per capita in 1970, these countries have transformed their economies and are not only miles ahead of Nigeria, but are also major players on the global economic arena. Indeed, Nigeria’s poor economic performance, is better illustrated when compared with China which now occupies an enviable position as the second largest economy in the world. In 1970, while Nigeria had a GDP per capita of $233.35 and was ranked 88th in the world, China was ranked 114th with a GDP per capita of $111.82.

The prospects for growth in Nigeria are very bright going by the achievements recorded during the last ten years and the current reforms in the various sectors. However, for Nigeria to consolidate these economic gains and move higher in the frontlines of growth and development, it must deepen reforms that improve human capital, promote high-quality public infrastructure, and encourage competition. The pillars to sustain this consolidation must include a firm fiscal policy, transparent fiscal operations, development-oriented monetary and exchange rate policies, strengthening of the financial sector and strict adherence to the rule-of-law.