Nigerias economy expanded by 7% over the last year. The strong growth is in line with the 7 per cent average achieved by Nigeria for a decade and is a reminder of why the country of 170m people is seen by many investors as one of the most attractive frontier markets. Unlike some other emerging economies [think: Venezuela], the currency is stable, and inflation fell to a five-year low of 7.8% (FT, 18-Nov-13). Compared with many western countries, Nigeria’s debt-to-GDP ratio is still relatively low, at around 20 per cent. But pressure to borrow more is likely to rise in the run-up to the 2015 vote. “Nigerias bond performed relatively well [in global debt markets], but the country suffers from corruption and is vulnerable to oil-price developments (i.e., a potential drop in oil prices). But the main risk global investors see is that the government in Lagos might be tempted to “start voter-pleasing projects in their constituencies ahead of the 2015 vote.” In other words, the danger is that the politicians in power might make the mistake of adopting spending measures requested by the majority of the population. Democracy is a big risk indeed (as always). Separately from Nigeria, Ghana and Zambia “have troubling fiscal situations, with swollen budget deficits. Ghana was last week forced to raise rates to 18% and introduce foreign-exchange controls to defend its currency” (WSJ, 10-Feb-14). Paul Kagamé’s Rwanda won a positive rating outlook from [American rating agency] Fitch in Aug. 2013. Gabon is also in a good posture: it runs a large current-account surplus; Gabon bonds have climbed even during the […] emerging-markets” wobbles of the last 9 months. The bottom line is: Sub-Saharan “Africas big lure for investors [is economic] growth, powered by good demographics, macroeconomic stability and economic overhauls.” When the WSJ speaks of “good demographics” it doesnt mean that people are good and all happy. It refers to a large labor pool made of a young and cheap population, alongside relatively small non-working-age sectors. When the WSJ speaks of economic overhauls, it means in plain English that the governments are largely willing to cut social-spending programs and privatize services and infrastructure. I am posting this because just 5 years ago, sub-Saharan Africa countries were never talked about in economic-performance terms similar to more-established emerging economies. The region was off the radar. Last year was a turning point: the region’s various countries are now considered as part of emerging markets, with special, close focus from global investors. “Security” considerations from foreign powers therefore will only continue to intensify from here.
Posted on: Tue, 11 Mar 2014 21:46:45 +0000
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