SA not part of African growth

Image courtesy stock.xchnge (KillR-B)

Image courtesy stock.xchnge (KillR-B)

I’m sure that you, like me, enjoy perusing the International Monetary Fund’s Regional Economic Outlooks (REOs) such as the one for Sub-Saharan Africa (SSA) released in late April.

They are typically not very current – they don’t deal with the big news of the day – but instead focused on broader trends and predictions for the year ahead.

The recent SSA REO was interesting on two levels. First, it made some important general points about the prospects for the region in the new, post-tapering, risk-averse world. Second, it highlighted the many ways in which South Africa is and has been diverging from the trends in the rest of Africa.

As many hopeful voices talk about the “African century” and “African Lions”, it’s important to remember that South Africa is not truly a part of this, much as we might wish it to be.

The IMF summarised the report with these three points:

· Robust regional growth seen in 2013 expected to accelerate in 2014

· Global trends supporting past growth could weaken over medium term

· Home-grown risks may cloud outlook further for some countries

The IMF expects overall regional growth in SSA to accelerate to 5.5% this year, from 5% last year on the back of mining and infrastructure investment and improved agricultural production.

Interestingly, the IMF notes that 2013’s growth was mostly supported by domestic demand – this is important as global demand, which was muted last year, will remain fairly subdued this year, and the support of domestic demand will therefore be important in maintaining regional growth.

Externally, slowing growth from China and the EU could dampen demand for SSA exports.

Internally, some risks could arise from fiscal imbalances as many SSA countries have spent up a storm in recent years, fed by stimulus capital. Funding is drying up and could cause repayment and stability problems.

But South Africa’s diverging path is the main focus of this article.

Let’s start by looking simply at growth. The report says SA grows much more slowly than its SSA peers, and drags down the average for the region when it’s included. South Africa is a very different kettle of fish to the fast-growth, low-income, resource-based economies north of the border.

It’s also facing different problems. While investment was rising in most of the continent, especially in mining, South Africa saw “anaemic private investment,” mainly due to strikes, and in part to new regulations. While security problems (especially in Central African Republic and South Sudan) were a concern for some African nations, these were not an issue for South Africa.

South Africa faces some fiscal imbalances and must raise rates to counter inflation, but our well-developed financial markets and larger asset pool give us an edge. But the larger point remains – South Africa is not really a part of the overall story of SSA.

We’re an upper-middle income economy with a well-developed services sector, not a low-income country reliant on natural resources like most SSA nations – and thus the drivers of growth are different too. South Africa can certainly benefit from its trade relations with high-growth African countries, but it is not one of them, and that is something investors should bear in mind.




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