The decline is due to low commodity prices, particularly oil, rising borrowing costs and other domestic challenges such as power shortages, the Ebola epidemic, conflict and political and security issues, compounded by tightening global financial conditions and drought in certain parts of the region.
Gross domestic product (GDP) decline in sub-Saharan Africa is expected to continue in 2016 with the projected decline at 2.5%, Robbie Cheadle, (CA) SA Associate Director – JSE Advisory Services, Mergers & Acquisitions at KPMG, said in a report released last week.He indicated that the decline is due to low commodity prices, particularly oil, rising borrowing costs and other domestic challenges such as power shortages, the Ebola epidemic, conflict and political and security issues, compounded by tightening global financial conditions and drought in certain parts of the region. GDP in the region stood at 4.5% in 2014 and declined to an estimated 3% in 2015.
“The recent decision by the United Kingdom to exit the European Community has taken place against this background and the impact on Africa as a continent is currently unknown, however, the expectation is that it will add to Africa’s woes. According to the Brookings Institute, the potential areas where Brexit could impact on African countries are through the impact of Brexit on the global economy, reduced British outwardness when it comes to global development issues and decreased bilateral development assistance and trade,” the report said.
It noted that it is not, however, all doom and gloom, referencing from the recently released World Investment Report, 2016 (WIR 2016), that foreign direct investment (FDI) into Africa dropped only 7% to US$54 billion in 2015, which is significantly better than the estimated US$38 billion FDI inflows to Africa during 2015 that was published by the UNCTAD Global Investment Trend Monitor during January 2016. According to the WIR 2016, while FDI inflows to South Africa, Ghana and Nigeria dropped by 30.3%, 4.9% and 11.1%, respectively, FDI inflows to Angola increased by 352% to US$8.7 billion and to Kenya by 42% to US$1.4 billion. It states that FDI inflows to Africa could start to increase during 2016 due to the liberalisation of investment regimes and privatisation of state-owned commodity assets by a number of African countries.
“In recent years, many African countries have also implemented reforms facilitating the created private pension systems that are rapidly accumulating assets under management, largely as a result of Africa’s growing middle class, rise in consumption, increasing urbanisation and rising per capita incomes,” the report says.Pension funds, it says further, play an important role in deepening financial markets and making cheaper funding available to corporations thereby contributing to national economic development and growth as they are long-term investors.
“Historically and currently, African pension funds have invested heavily in domestic debt due to a combination of regulatory hurdles, risk adverse trustees and poor incentives. Many African governments are in the process of liberalising regulations in respect of the pension fund industry, thereby, allowing them to put money into certain alternative investments, including private equity, and to invest outside of their own countries,” the report says, further pointing out that the rapid growth of the African pension fund industry is necessitating diversification of investment risk by trustees and fund managers, and this, together with more favourable regulation, is resulting in an increase in funding available for investment into listed equities, bonds and also into private equity.