African economies will outperform global growth in 2020
By Yinka Adegoke*
Last year, Africa had some of world’s fastest-growing economies and 2020 won’t be very different.
A few of the countries on the top 10 list may have changed but the IMF, World Bank and other institutions all expect above global average GDP growth.
The top performers will be South Sudan (8.2 percent), Rwanda (8.1 percent) Côte d’Ivoire (7.3 percent), Ethiopia (7.2 percent), Senegal (6.8 percent), Benin (6.7 percent) and Uganda (6.2 percent) along with Kenya, Mozambique, Niger and Burkina Faso all expecting six percent growth.
While these countries help push up Africa’s overall average economic growth rate forecast to 3.8 percent (or 3.6 percent for Sub Saharan Africa), these averages are weighed down closer to the global average (3.4 percent) by the two largest economies, Nigeria (2.5 percent) and South Africa (1.1 percent).
Nigeria’s outlook has improved after a strong end to 2019, but most economic watchers believe it needs to grow much faster to pull large chunks of its 200-million strong population out of poverty.
Economic reform has been slower than expected since February 2019’s presidential election. South Africa’s meager growth rates are exacerbated by its ongoing electricity crisis and overall political stasis. Its leaders will likely spend part of the year dreading an inevitable debt downgrade.
Since 2020 is seen as the start of a new decade, Brookings Institution’s annual Foresight Africa report looked at the average economic growth forecasts for the next five years till 2024. This predicts Senegal (8.3 percent), Rwanda (7.9 percent), Niger (7.3 percent), Uganda (7.2 percent) and Mozambique (6.9 percent) as the five fastest growing over that period.
While these forecasts are promising, most economists and investors are paying more attention to how the reality of climate change will impact their economic prognostications. Brookings highlights research which shows lowered crop yields, lower labor and agricultural productivity and damage to human health due to climate change will significantly decrease GDP in Africa. Global temperatures rising as much as 3°C by 2100 would have a disproportionate impact on Africa with aggregate GDP potentially dropping by as much as 8.6 percent after that year.
But on a more hopeful note Brookings analysts say there’s a $16 billion
opportunity if African countries fully implement the African Continental Free Tree Agreement (AfCFTA). In the ideal scenario where there’s a 100 percent liberalization of tariffs across African member states under the agreement, the continent’s aggregate GDP would jump to $3 trillion by 2030 from $2.1 trillion today. In this scenario there would be a 33 percent increase in intra-African exports and 1.2 percent increase in employment.
One less optimistic economic highlight from the last few years has been growing concern about Africa’s rising debt and this continues into 2020. Most of the worry has been about eurobond debt with African countries issuing some $26 billion in eurobonds in 2019 more or less
equivalent to 2018. Or, put another way, Africa issued more eurobonds in 2018 and 2019 that it did in all the years combined from 2003 to 2016.
While African eurobonds have been great for international investors seeking higher yields away from US treasuries, “the scale of issuance keeps prompting questions about default even though it amounted to just one percent of Africa’s 2019 GDP ($2.4 billion),” wrote Charles Robertson of Renaissance Capital.
But of course, Africa is not a country and there will be trouble spots if care is not taken.
* Yinka Adegoke is Africa editor for Quartz news organization.
Auto industry cautious about China’s sluggish market at start of decade
China’s auto market is likely to shrink for the third year in a row in 2020, the country’s top auto body was expected to say on Monday, but industry watchers are cautiously hoping a sales recovery in lower-tier cities ease the pace of decline.
The drop in car sales is expected to be milder than last year, when sales were pressured due to new emission standards in a broader economy that was both shrinking and under attack amid a trade war with the United States, Reuters reported.
The China Association of Automobile Manufacturers (CAAM) last month forecast annual car sales in 2020 would dip two percent after an estimated eight percent slump in 2019.
In 2018, sales declined 2.8 percent, halting a growth march that started in the 1990s.
“The negative effect of cutting purchase tax in 2015-2017 has disappeared, and car sales in lower-tier cities are expected to recover,” said Alan Kang, a senior analyst at LMC Automotive.
“The easing of trade tensions between China and the United States has also helped restore consumer confidence,” said Kang, who expects car sales in China to grow 0.05 percent this year.
But global automakers have been cautious with their predictions after cutting back production, shutting factories and firing staff last year.
Top executives in companies such as Geely and Ford Motor Co partner Chongqing Changan Automobile Co Ltd have said they expect fiercer competition to weed out weaker players.
On Monday, Ford said China auto sales in 2019 slumped by more than a quarter, its third straight year of decline as demand for its mass-market Ford brand and sports utility vehicles continue to be anemic.
This fall, however, was slower than the 37 percent drop in sales Ford weathered in 2018 and the company said it saw its market share in the high-to-premium segment stabilize last year.
But it remained cautious about 2020, echoing bearish comments about sales in China from General Motors Co.
“We expect the market downturn to continue in 2020, and anticipate ongoing headwinds in our China business,” Matt Tsien, president of GM China, said last week as the automaker reported a 15 percent drop in sales in 2019.
Volkswagen AG, whose sport-utility vehicles have helped it to report a smaller 1.1 percent year-on-year fall in sales in the first 11 months of last year, has said it expects China’s market to grow at a relatively low pace for the next five years.
The bright spots have been Japanese car makers Toyota Motor Corp and Honda Motor Co Ltd as well as US electric vehicle maker Tesla Inc, which started delivering China-made Model 3 sedans from its $2 billion Shanghai plant this month.
Bitcoin’s intrinsic value remains below market price, ‘suggesting some downside risk’
Bitcoin’s intrinsic value (an estimate of the actual true value) is still below market price, according to JPMorgan.
“The gap has not yet fully closed, suggesting some downside risk remains,” said JPMorgan strategists led by Nikolaos Panigirtzoglou (MD for Global Market Strategy) in a note published Friday, as reported by Bloomberg, new.yahoo.com said.
The market price of bitcoin has declined by almost 40 percent from its peak, while the intrinsic value has increased by around 10 percent, strategists said.
The investment banking giant calculates the intrinsic value of bitcoin by treating it as a commodity and looking at the marginal cost of production including computational power employed and electricity cost, per the report.
Bloomberg Intelligence, on the other hand, recently said that bitcoin price is set to increase this year. Mike McGlone, a senior commodity strategist for the firm, said that bitcoin’s fixed supply of 21 million coins and increasing adoption are likely to support bitcoin’s appreciation in 2020.
JPMorgan also sees ‘high anticipation’ of the launch of CME bitcoin options among market participants. The options are scheduled to go live today. “It was only a matter of time before options started to account for a big part of crypto,” Rich Rosenblum, co-founder of crypto trading firm GSR, told The Block last week.
India creating fewer jobs for world’s biggest workforce
India will create at least 1.6 million fewer formal jobs across government and low-paying sectors, State Bank of India estimates, a segment that typically absorbs some of the millions of youth entering the world’s biggest workforce each year.
There’s also evidence that people who migrate within the country for employment are sending less money home to some of the poorest states, Soumya Kanti Ghosh, chief economic adviser for the nation’s biggest bank, wrote in a report on Monday. The data indicate that India’s consumption and tax collections could stay weak for longer, he said, Bloomberg reported.
Poor job creation risks worsening the highest unemployment rate in 45 years and build pressure on Prime Minister Narendra Modi’s government, which is already battling the weakest economic growth in more than a decade and student-led street protests. Asia’s third-largest economy is officially forecast to expand five percent this financial year, stronger than SBI’s prediction of 4.6 percent.
More than 12,000 unemployed people died by suicide in India in 2018, India Today reported based on latest government data published last week. That’s more than one person each hour. The number is higher than in 2017, and accounts for almost 10 percent of total suicides in the country.
Pronab Sen, India’s former chief statistician, last week told The Wire that India is also seeing a decline in informal jobs. The drop can be linked back to Modi’s November 2016 decision to overnight invalidate 86 percent of the country’s currency, which broke the back of the nation’s vast, cash-based economy, he said.
“The young, the untrained, the unskilled, would get their first break in the informal sector,” Sen said. “They would pick up skills on the job, and then they would get picked up by more formal establishments. That stream has been broken.”
Avoid UK recession by kickstarting green economy, says think tank
The UK government fightback against the next recession should include pumping as much as £50 billion into green projects, in a move that would help reboot the economy and tackle the climate emergency, according to a left-leaning think tank.
Against a backdrop of concern among economists that Britain is ill-equipped to combat another downturn on the scale of the 2008 financial crisis, the New Economics Foundation think tank said a green plan to beat a future slump was required, the Guardian reported.
In the event of a recession, it said the government should spend at least two percent of gross domestic product (GDP), or around £30 billion, to decarbonize the economy, by investing in renewable energy projects, planting trees, transport infrastructure, electric vehicles, and retrofitting homes with new insulation. For a larger economic shock, as much as three percent of GDP, or around £50 billion, could be spent.
Leading economists including former US Treasury secretary Larry Summers and the former chief economist at the International Monetary Fund, Olivier Blanchard, have called on governments around the globe to prepare for future economic shocks with readily available blueprints to raise government spending.
It comes as central banks, including the Bank of England, have limited capacity to provide support because interest rates remain close to the lowest levels on record more than a decade after the financial crisis. Mark Carney, the bank’s governor, has hinted that Threadneedle Street could cut rates soon, while warning that it is running out of ways to combat recessions.
The foundation said that raising investment in green infrastructure was required regardless of whether Britain was facing a recession or not. However, it said that a plan for fighting a future downturn should have decarbonization at its core.
Rolling out an expansive green spending round would help the government to avoid mistakes made responding to the last recession, the think tank said, arguing that ministers missed an opportunity to decarbonize the economy following the 2008 slump.
South Korea’s exports rose 5.3 percent in the first 10 days of January, mainly due to rising shipments of semiconductors, customs data showed Monday, Yonhap reported.