Post by Belmot on Feb 8, 2016 15:18:25 GMT
The past year has been difficult for many markets in Sub-Saharan Africa (SSA). Dramatic currency fluctuations, depressed prices on commodities such as oil and copper, and sluggish demand from China and Europe (Africa’s largest trade partners) have put pressure on the region’s economies. While SSA was predicted to grow above 5% year-over-year in 2015 at the beginning of the year, actual GDP growth is more likely to come in at around 3–4% year-over-year. Growth in 2016 is unlikely to be much higher.
As a result of these pressures, 2015 performance has been disappointing, leading some Western multinationals to reduce their exposure to the region, and a few are even considering leaving. Nestlé announced plans to cut its staff in some central African countries, while Barclays’s new CEO is considering selling off the bank’s Africa assets.
However, although some of our clients have been facing difficulties resulting from the current environment, primarily because of currency pressures, many others are continuing to see strong growth, even in troubled markets such as South Africa and Angola. For example, despite subdued consumer demand, new clothing retailers are moving into South Africa to tap the country’s underserved middle class. And despite government revenues having been hit hard in Angola, medical device companies are still selling expensive equipment to the ministry of health.
The continent’s long-term potential remains attractive, but a company’s success in the current environment will depend on its strategy. Businesses will have to adapt to withstand slower and more variable growth across SSA.
To understand which markets will be more successful in weathering economic challenges and providing sustainable growth to multinational companies, my company, Frontier Strategy Group, developed a Sub-Saharan Africa Resilience to External Shocks Index (RESI). It assesses SSA markets’ socioeconomic fundamentals and internal strength by looking at measures of political stability, trade exposure, economic diversification, wealth, and productivity.
In our index, countries receive a score from 0 to 100, with 100 indicating highest relative resilience. Resilience is tied to a country’s ability to maintain economic and political stability despite external shocks, due to stronger fundamentals, internal buffers, and self-sufficiency. By incorporating both quantitative and qualitative analysis that looks at historical developments and our analysts’ projections, the RESI allows for a nuanced understanding of market resilience.
*Relatively mature democracies Mauritius, Botswana, Namibia, and South Africa rank highly as a result of their comparatively sound political environments and strong human capital. East African markets perform well because their dependence on commodities is low and, as oil importers, they benefit from the low price of fuel. Francophone West African markets rank well because regional currencies are less volatile, as they are pegged to the Euro.*
*Even though Nigeria is the region’s largest oil exporter, it emerges as resilient because its economy is far more diversified than commonly assumed. The services, retail, transport, and construction sectors make up a large share of GDP, and the country’s vast film industry, Nollywood, is good for commercial activity in the country outside oil and gas.*
*However, Angola, the other large oil exporter in the region, ranks close to the bottom because its economy is not diversified. Other markets ranking at the bottom do so mostly because of political volatility, poor governance, and overreliance on commodity exports.
hbr.org/2016/02/sub-saharan-africas-most-and-least-resilient-economies
As a result of these pressures, 2015 performance has been disappointing, leading some Western multinationals to reduce their exposure to the region, and a few are even considering leaving. Nestlé announced plans to cut its staff in some central African countries, while Barclays’s new CEO is considering selling off the bank’s Africa assets.
However, although some of our clients have been facing difficulties resulting from the current environment, primarily because of currency pressures, many others are continuing to see strong growth, even in troubled markets such as South Africa and Angola. For example, despite subdued consumer demand, new clothing retailers are moving into South Africa to tap the country’s underserved middle class. And despite government revenues having been hit hard in Angola, medical device companies are still selling expensive equipment to the ministry of health.
The continent’s long-term potential remains attractive, but a company’s success in the current environment will depend on its strategy. Businesses will have to adapt to withstand slower and more variable growth across SSA.
To understand which markets will be more successful in weathering economic challenges and providing sustainable growth to multinational companies, my company, Frontier Strategy Group, developed a Sub-Saharan Africa Resilience to External Shocks Index (RESI). It assesses SSA markets’ socioeconomic fundamentals and internal strength by looking at measures of political stability, trade exposure, economic diversification, wealth, and productivity.
In our index, countries receive a score from 0 to 100, with 100 indicating highest relative resilience. Resilience is tied to a country’s ability to maintain economic and political stability despite external shocks, due to stronger fundamentals, internal buffers, and self-sufficiency. By incorporating both quantitative and qualitative analysis that looks at historical developments and our analysts’ projections, the RESI allows for a nuanced understanding of market resilience.
*Relatively mature democracies Mauritius, Botswana, Namibia, and South Africa rank highly as a result of their comparatively sound political environments and strong human capital. East African markets perform well because their dependence on commodities is low and, as oil importers, they benefit from the low price of fuel. Francophone West African markets rank well because regional currencies are less volatile, as they are pegged to the Euro.*
*Even though Nigeria is the region’s largest oil exporter, it emerges as resilient because its economy is far more diversified than commonly assumed. The services, retail, transport, and construction sectors make up a large share of GDP, and the country’s vast film industry, Nollywood, is good for commercial activity in the country outside oil and gas.*
*However, Angola, the other large oil exporter in the region, ranks close to the bottom because its economy is not diversified. Other markets ranking at the bottom do so mostly because of political volatility, poor governance, and overreliance on commodity exports.
hbr.org/2016/02/sub-saharan-africas-most-and-least-resilient-economies
