GTR asked key contacts in the market to provide us with summaries of what they think will be “big” in Africa this year. This is what they had to say.

Guillaume Arditti, founder, Belvedere Advisory

“2015 has been a tough year all round, which has somewhat obscured some significant successes in Africa. Oil-producing countries have shown a strong resilience to the oil crisis, while some political milestones have been reached: the first opposition candidate to defeat an incumbent in Nigeria, peaceful elections in Côte d’Ivoire, and Burkina Faso proving wrong those who expected a classical constitutional or military coup scenario.
Threats are there nevertheless, and depending on the capacity to transform them into opportunities, 2016 might be binary, for the better or the worse. The oil crisis needs to be used as a catalyst to accelerate the structuration and diversification of the economies: moving forward with the liberalisation of oil prices – far less painful than during periods of high prices – would alleviate the burden of the subsidies on the budgets. Intensification of infrastructure investments, particularly in power, will be the only way to unleash the potential of the other sectors, from agriculture to digital through to financial services and FMCGs. Countries like Egypt, Algeria, Nigeria, Ghana, Angola, but also Mozambique and Kenya will be at the forefront. Contradicting this objective, the growing indebtedness is becoming a major concern, but at the moment its uses rather than its levels should be the primary focus, especially in a year that will be paved with new elections in about 10 countries.
Worryingly, on this front, 2016 might not be inspired by 2015 – some results don’t leave much doubt and a number of constitutions have already been modified to allow for third mandates. Regimes in Angola or Rwanda have sufficient stability, rooted in the tragedies of the past, to – still – avoid major turmoil. This is far from being the case in DRC, where the situation should be closely monitored, given its huge destabilising potential for the Great Lakes Region – already weakened by the worsening situation in Burundi. Some hope, however, that if the African Union’s intervention in Burundi proves efficient, it could be a major step in the strengthening of its credibility. The great unknown remains the multi-dimensional Sahel crisis, which will be dealt with for a long time. Still, the implementation of the peace deal in Mali might appease the internal situation and hopefully Niger, which has resisted to pressures similar to those in Mali, will go through another proper electoral process. Let’s hope 2016 will be a transformative year for the best – the only way will be up.”

Giles Hedley, client liaison officer, Barak Fund Management

“Emerging markets enter 2016 on the back of a tough 2015, with volatile global markets the leading cause of low commodity prices – the driver of emerging market economies. Africa has certainly felt the effects of strained global markets entering 2016, and the outlook for the continent is a difficult one to accurately forecast.
The year’s big trends will certainly focus around currency markets amongst Africa’s leading economies (South Africa, Nigeria, Kenya and Zambia), developments in China and the concern regarding its growth outlook (which will drastically affect commodity prices), widening external imbalances, and the continued anticipation of monetary tightening by the US Fed. Each of these factors has a major part to play in the 2016 outlook for Africa.
Barak approaches the outlook with a sombre view affected by continued low commodity prices and weak growth in the latter stages of 2015 among the continent’s main trading partners, including Ghana, Nigeria, Angola and South Africa. Additionally, major African currencies have devalued significantly against the US dollar leading into 2016, further widening external balances. The biggest currencies to be affected by this volatility have been the Zambian kwacha, South African rand, Angolan kwanza and Ghanaian cedi.
Furthermore, Barak has seen dollar liquidity problems in four major Sub-Saharan African countries, with Nigeria and Angola experiencing difficulties due to the drop in oil price over the last 18 months. Malawi and Zimbabwe have experienced these liquidity difficulties due to slow growth experienced as well as poor growth forecasts.
A major trend that Barak has strongly noted for Africa’s 2016 outlook is the forecast real GDP growth for countries in Central and East Africa. Countries forecast for highly strong growth include the DRC, Tanzania, Kenya and Ethiopia. Countries with strong growth prospects include Malawi, Uganda, the DRC, Cameroon and Rwanda.
A common theme for all of these countries is their continued view on technology within their respective economies, the embrace of which has enabled them to become market leaders within their fields both on the continent as well as globally. For example, Kenya’s view going into 2016 is that it tops Africa’s list as the most attractive destination for FDI, predominately from China. It has established itself as a global leader in the financial services sector, particularly in mobile payments.
Regarding Barak’s 2016 approach, ailing commodity prices as well as continued testing agricultural conditions have resulted in larger allocations towards fast-moving consumer goods (FMCG). In alignment with managing certain commodity exposures and country risk factors, the importance of an on-the-ground African presence and stringent due diligence process for doing business in Africa becomes all the more critical.”

Georges Wega, deputy CEO, Société Générale Cameroon

“Africa’s economy will remain resilient in 2016, despite a weak global economy. GDP growth will continue to be impacted by the global challenges and is expected to be between 4% and 5% in 2016, which is about the same level as 2015. The political agenda in Africa will be very busy in 2016, with no less than 16 presidential terms coming to an end and therefore 16 potential elections to be organised. Oil prices are expected to remain lower than previous years, with a barrel forecast to cost between US$40 and US$50. China’s slowdown will continue to impact on the international demand for several commodities. Security challenges in
some parts of the continent (Northern Nigeria, Mali, the Sahara corridor, etc) will remain of great concern. All these will put further pressure on trade volumes and prices to, from and within Africa, and will call for more innovation, agility and resilience from those involved in the trade value chain: producers, traders, buyers, banks, transporters, governments, regulators, regional bodies, trade zone authorities, etc. Although governments will remain attentive to conditions in key markets (Europe, US and China), intra-Africa trade growth will become a key driver in 2016 to stimulate growth.
However, there will be regional differences: West Africa is expected to see a higher growth rate, driven by Nigeria (despite security concerns and the fall in oil prices) and Côte d’Ivoire, which is undergoing significant infrastructure-driven transformation. They will also benefit from a relatively stable political agenda in 2016 as well as the end of the Ebola virus. Central Africa is expected to have a more challenging year with several presidential elections (Congo, DRC, Chad, Gabon, etc) and the much higher oil dependency of their economies. However, countries like Cameroon with GDP growth projection of 6% will benefit from a more diversified economy and a heavy infrastructure agenda. East and Southern Africa will see strong service-driven growth despite a slowdown of the South African economy.”

Jan Friederich, head of Middle East & Africa sovereign ratings, Fitch Ratings

“For Fitch Ratings, Sub-Saharan Africa (SSA) starts 2016 with no countries on a positive rating outlook and five countries on a negative outlook: the DRC, Ghana, Kenya, Lesotho and Nigeria, implying an overall negative outlook for the region. The recent dramatic decline in commodity prices and the tightening of global liquidity conditions will continue to negatively affect SSA prospects for the coming year. The substantial accumulation of government debt over the last several years will also increasingly become an obstacle to growth in the region.
SSA’s main oil exporters, the DRC (net oil exports of 58.8% of GDP), Angola (57.6%), Nigeria (33%) and Gabon (30.8%), as well as Zambia, which relies heavily on exports of metals, will be strongly affected by the decline of commodity prices to multi-year lows. The resulting pressure on local currencies and foreign reserves will continue. Nigeria has dealt with these pressures by tightening access to foreign currency, but this approach is increasingly becoming burdensome for businesses requiring foreign imports for their operations. African economies rely heavily on external market financing and are negatively impacted by the tightening of global liquidity conditions, accentuated by the recent first rise in US Federal Reserve interest rates since 2006, which will make access to external financing more challenging. This particularly affects South Africa, although its flexible exchange rate and reliance on long-dated rand-denominated debt is an important buffer. The dismissal of two finance ministers by South African president Zuma in less than a week in mid-December last year lost the country some credibility that will be a challenge to rebuild.
The rise in general government debt, from a median of 30.6% of GDP in 2008 to 41.5% in 2015, will continue to push up SSA countries’ eurobond yields. Governments will therefore be under increasing pressure to consolidate public finances, although Nigeria, among others, is still raising public expenditure substantially. Despite these challenges, SSA growth will still be strong compared to other regions, boosted by countries that rely less on commodity exports and international financing. Ethiopia, for example, the region’s second most populous economy, will still grow at 8.5%.”

Rupert Cutler, CEO, financial & political risks division, CGNMB

“2015 was the year of progress and retreat across the continent, both economically and politically, with stability showing stresses and strain. The differences by region and country came starkly into view when the China demand adjustment from June led to a settling of commodity prices and revenue. Trade finance and trade continued at a measured pace – we believe that this is reflected in the increased activity, albeit either at lower values or volumes, than predicted two years ago when global recovery from the depths of recession were hoped to return to previous levels.
Price volatility has, and will continue to, affect petro economies: the arrival of Iran as a major exporter and the substantially lower pricing means that Angola, Nigeria and others with previously over-optimistic government budgets will have to reassess their spending plans to avoid the need for assistance from the IMF (as happened to Ghana). It enables room for reform, such as has already occurred: it’s a reduction in subsidies in Nigeria and the opportunity to continue with natural gas expansion. Energy projects appear to be continuing, although the repayment structures are being revisited to match current pricing. It is likely that more may need updating as most are 20-plus-year projects. With the demand for power on the continent in the domestic and industrial use far from met, these will continue.
Terrorism from separatist and religious groups is increasing, with foreign nationals as targets. We believe this is the norm for now, which affects business and tourism. Expenditure on security will mean that funds for some infrastructure projects may be put off or involve more external support from Chinese or external investors.
Agriculture is the quiet dynamo feeding the continent and with drought in the southern region for a second year we believe there will be higher imports of maize to the regions affected, which will require trade finance for private and public importers. Coffee, pulses and cocoa remain strong, with cotton less so, although all require finance with inputs essential. Insurers have a positive appetite for transactions with longer tenors and higher capacity for the right deals involving ECAs as well as the private insurers. Lloyds and specialist African insurers responded well, paying some credit, terrorism and government default losses in 2015. We believe that the year of the Red Monkey will enable new innovation after a year of adjustment, with insurers ready to support banks with a pragmatic approach to this diverse continent of opportunity.”

Omen Muza, managing director, TFC Capital (Zimbabwe)

“The key question is: how can African banks cope with the closure of correspondent banking relationships and limit the negative impact on trade?
Correspondent banking services are essential for companies and individuals to transact internationally and make cross-border payments. In recent times, indications are that certain large international banks have started terminating or severely limiting their correspondent banking relationships with smaller local and regional banks from jurisdictions around the world. The World Bank Group considered the issue important enough to warrant a study of its own. Roughly half of the banking authorities surveyed and slightly more local/regional banks indicated they were experiencing a decline in correspondent banking relationships. Trade finance is amongst the products and services identified as most affected by this withdrawal of correspondent banking.
A lack of effective intra-African payment systems has historically impeded economic growth across the continent given the reliance on the traditional model of correspondent banking, whereby regional transactions are typically cleared in dollars by US-based institutions; adding significant costs to trade and business. As already seen, these types of correspondent banking relationships, which currently dominate the continent’s payments architecture, are coming under increasing pressure due to know your customer (KYC) and anti-money laundering (AML) considerations. Enter Africa’s regional payment systems. The Southern African Development Community (SADC)’s Integrated Regional Electronic Settlement System (SIRESS), which settles payments in South African rand, was initiated in July 2013, followed by the launch of the East African Payments System (EAPS) later that year, catering to members of the East African Community (EAC) through local multi-currency settlements. The Common Market for Eastern and Southern Africa (Comesa) has been expanding its Regional Payment and Settlement System (REPSS) since going live in late 2012.
SIRESS, EAPS and REPSS now present an alternative model to the traditional correspondent banking model, with benefits including greater cost efficiency in terms of reduced exchange rate risk as well as lowering the cost associated with circuitous correspondent banking processes. These systems are therefore expected to play an influential role in the continent’s economic growth particularly as intra-African trade picks up. In 2016 and beyond, I therefore expect the responsible pan-African authorities to play a leading role in encouraging usage of these regional payment systems with the ultimate objective of integrating them to create a seamless network that enhances the effectiveness of intra-African trade. Against the background of the recently launched Tripartite Free Trade Area incorporating Comesa, SADC and EAC, this is no longer just a luxury but an imperative.”

Simon Cook, trade finance partner, Sullivan & Worcester

“For many years, those involved in the trade finance market asked themselves the same question – will this be Sub-Saharan Africa’s year? Following the difficulties which have arisen in certain other emerging markets recently, investors and financiers have been looking much more closely at Africa over the last couple of years than ever before. For a while, things seemed to be taking off on the continent, but then during the course of 2015 a slowdown started to take effect. What was this down to? Certainly the drop in commodity prices (particularly oil and agri, two of Africa’s staples for export) didn’t help and there were (and still are) liquidity issues with certain countries. Added to this is the fact that the number of high-value syndicated deals is still very small. In fact, apart from Ghana Cocobod and Sonangol, it is difficult to think of many other significant syndications. With much of the finance being sought by corporates falling into the lower value category (less than US$20mn) and infrastructure improvements still needed, there is still a way to go in order to boost exports and service additional export markets. Confidence in the ability of corporates to perform both commercially on a large scale and in terms of compliance requirements needs to be higher if there is to be a significant change in the outlook. This is particularly true in the current regulatory environment where banks find it more difficult to operate in some countries for compliance reasons. As a result, all parties must continue to work hard to achieve success in what are difficult times and of course it would help if the slide in many commodity prices could be stopped or even reversed to some degree.
I would expect to see commodity prices remain at low-ish levels and for banks to continue to find it difficult to get significant numbers of deals approved, whether for reasons of risk or compliance. If corporates and banks can work together to provide what each party needs in the current climate, then I would foresee a good year ahead for Sub-Saharan Africa. Commodities can be financed at any price level so if a deal can be structured well, it should be possible to find finance for it, whether through banks or non-bank financiers, who I would expect to play a more prominent role than in the past.”

Hippolyte Fofack, chief economist and director of research, Afreximbank

“Africa emerged as one of the world’s fastest-growing regions after the transition to the new millennium. The commodity super-cycle and accommodative global financial conditions helped African countries reap rewards from improvements in their business environment and macro-economic management. The difficult external environment of the last few months – most notably the counter-shock in commodity markets, less supportive financial conditions, and the slowdown of China’s economy, which had acted as the locomotive of global growth – is likely to put brakes on Africa’s performance. Even so, African countries can count on strong positive forces unleashed by sustained economic reforms, investments in infrastructure in support of structural transformation, and firm domestic consumption driven by an expanding middle class. All in all, Africa’s growth in 2016 is projected to improve slightly, to about 4.25% from about 3.75% in 2015.
But the growth expected in 2016 will probably not be robust enough to change the dynamics of African trade, which are highly correlated with movements in global trade. Africa’s merchandise trade is projected to contract slightly in 2016, on the back of lower commodity prices and declining global demand in a context of weak economic performance in the euro area and China, the continent’s largest trade partners. The contraction will probably be less than 5%, and very much in line with expectations for global trade.
The overall trade contraction in Africa is likely to be largely driven by dynamics in the oil market, since oil-exporting countries account for about half of Africa’s GDP and more than 55% of its exports. In the short and medium term, oil dynamics will continue to be highly influential. But African countries have been expanding their intra-regional trade, particularly as global trade has contracted. Intra-African trade has proved to be an important risk-mitigating factor, helping countries to absorb adverse global shocks, and it is expected to continue expanding.
Looking forward, African trade is expected to benefit from ongoing initiatives to deepen intra-regional trade and economic integration, such as the East African Community Common Market, the Tripartite Free Trade Area, and progress towards the Continental Free Trade Area. It will also benefit from the Counter-Cyclical Trade
Liquidity Programme that was recently approved by the board of directors of Afreximbank. This programme will help member countries to bridge the trade financing gap confronting them as a result of current economic shocks and the challenging global economic and financial environment.
The prospects for growth in African trade entail downside risks, especially if the external environment continues to weaken in the face of growth deceleration in China and a disorderly global asset reallocation, and if the African trade finance gap widens as a result of shortage of liquidity inflows from international banks to Africa.”

Shannon Manders, editor, GTR

“Southern Africa is experiencing its worst drought in decades: prolonged dry spells led to a poor harvest last year, and there is little hope that the situation is about to improve. According to the World Bank’s 2016 Global Economic Prospects report, together with power supply bottlenecks and difficult labour relations, drought
is one of the factors weighing heavily on South Africa’s economic growth. In other countries, such as Zambia and Botswana, it has brought about shortages of hydro-electric power. More importantly, the United Nations World Food Programme (WFP) is increasingly concerned about food security and the potential for famine. With fields drying out and the window for the planting of cereals closing fast – or already closed in some countries – the outlook is alarming. In the midst of this panic, governments in the region have put the issue at the top of their agendas and are looking towards South America for imports to fight the risk of being plunged into famine.
The challenges, however, are multiple. The chief issue, GTR understands, is that the majority of countries in the region do not allow the importation of GMO crops – which the South American maize and soya bean producers harvest. According to local reports in South Africa, the Industrial Development Corporation (IDC) and the Land Bank are set to provide aid packages to struggling farmers, but the extent of these support measures has yet to be decided. This is certainly going to be one of the biggest talking points in the region this year.”