SUB-SAHARAN AFRICA (SSA)

KE NAKOIT’S NOW OR NEVER

February 2013

proposed by Matthieu Delouvrier

Working-age population worldwide

Megatrend: it is the dawn of SSA

Megatrend: it is the dawn of SSA

2

1950

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090

2100

0

1 000 000

2 000 000

3 000 000

4 000 000

5 000 000

6 000 000

7 000 000

More developed regions China India ROW SSA

(Tho

usan

ds)

Source: United Nations

7%

36%

28%

15%

9%

12%

23%14%22%

34%

11%

33%

18%

21%

17%

Some references

Source: IMF WEO Oct 2012

France 2.6

Brazil 2.4

India 1.9

Spain 1.3

SSA 1.3

Mexico 1.2

Korea 1.1

Indonesia 0.9

Turkey 0.8

SSA GDP is in top 20

SSA GDP is in top 20

India 4.7

Brazil 2.5

France 2.2

SSA 2.1

Mexico 1.7

Korea 1.6

Spain 1.4

Indonesia 1.2

Turkey 1.1

GDP current GDP current PPP

(USD trillion in 2012)

3

What do we see today?

4

Ten fastest growing countries*

• Countries with population above 10 millionSource: IMF WEO Oct 2012

Angola 11.3

China 10.5

Myanmar 10.3

Nigeria 8.9

Chad 8.6

Ethiopia 8.3

Kazakhstan 8.3

Mozambique 8.0

Cambodia 8.0

Rwanda 7.8

SSA countries show the highest growth

SSA countries show the highest growth

Iraq 11.0

Ghana 9.4

China 8.5

Mozambique 7.8

Guinea 7.6

Rwanda 7.6

Niger 7.4

Zambia 7.4

DR Congo 7.2

Cambodia 7.0

2001-2010 2011-2015 (f)

(Annual average GDP growth rate in %)

5

GDP growth of SSA countries

The trend is very supportive

The trend is very supportive

Source: IMF WEO Oct 2012

6

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

20122014

-2

-1

0

1

2

3

4

5

6

7

8

(Annual GDP growth rate in %)

Forecast

. South Africa companies remain largely dominant.. Oil and mining: 33.2% of sales.

Big industries are paving the way

Big industries are paving the way

Sales of SSA biggest companies (US$ bn)

. FTSE ASEA Pan Africa index increased by around 20% in 2012.

Source: The Africa Report - Top 500 African companies

7

2007 20110

100

200

300

400

500

600

South Africa SSA (excluding South Africa)

CAGR

7.3%

5.7%

. Africa has twice as many mobile phones as the USA.. Mpesa (Kenya) has become a global leader in mobile banking and is selling its technology to India.

Technology (mobile) is breaking through

Technology (mobile) is breaking through

Mobile: the door to modernity

. Mobile phone is decreasing costs, improving efficiency.. Nigeria is distributing subsidized inputs to 1.5 million farmers through cell phones.

Source: MobileMarketingWatch

8

Entrepreneurs are building success stories

Entrepreneurs are building success stories

Mr. Dangote ranked 76th world richest*

*Source: Forbes

. Current activities: cement, sugar, flour, salt….. Company expected to be listed on the London Stock Exchange in 2013.

. February 2013: signature of a strategic agreement with General Electric to collaborate on power, transportation and oil & gas.

9

Entrepreneurs are dedicated to the continent

Entrepreneurs are dedicated to the continent

Mr. Mo Ibrahim created his Foundation

. Mr. Mo Ibrahim made a remarkable success in mobile telecommunications with Celtel which was sold in 2005.

. The Mo Ibrahim Foundation was created in 2006 to stimulate good governance and leadership in Africa.

10

The culture industry is not left over

The culture industry is not left over

The second largest film industry in the world

NOLLYWOOD: the star of Afrotainment

. Second largest employer in Nigeria

. 56% of movies in local language

. Average DVD sale: 25-50,000 copies

. 300 producers

. Above 1,000 films per year

. Average cost: US$ 20,000 per film

11

The middle class is driving growth

The middle class is driving growth

Middle class size in Africa (million)

. Middle class expected to double in 20 years.. Consumer spending (US$ 1tr) similar to India, higher than Russia.

. Passenger cars import in SSA increased by 25%+ in Q4 2011 (YOY) and 250%+ in Rwanda.. Nestlé invested US$ 1 bn in 2011.

1990 2000 20100

50

100

150

200

250

300

350

157

204

326

Source: African Development Bank

12

+60%

The overall security has improved

The overall security has improved

Source: Uppsala University

1980-89 2000-09

Conflicts are regressing

. The number of deaths by violence has decreased due to the reduction of conflicts and their intensity following the democratization of the continent.

. Successful coups in Africa were down from 20 during 1980-89 to 7 during 2000-09.

13

Growth is not inclusive enough

Growth is not inclusive enough

Source: World Bank 2012

Extreme poverty headcount ratio (%)

. The ILO* estimates that between 2000 and 2007, the working age population grew by 96 million but only 63 million jobs were created.

. Unemployment hits the youth.

. Most countries are not on track to achieve the Millennium Development Goals by 2015.

* International Labour Organization14

Sub-Saharan Africa

East Asia & the Pacific

Required Millenium Development Goal progress

Political and civil rights are not progressing

Political and civil rights are not progressing

Source: Freedom House

2012

2002

Classification of countries

. During the last ten years, political and civil freedom has not improved significantly.

17%

18%

47%

43%

36%

39%

Free Partly free Not free

. On the other side, many elections held in 2011 showed that peaceful political alternation is possible.

15

What are the drivers of change?

16

Macro policies have produced results

Macro policies have produced results

Source: IMF, World Bank data

1990 20110%

10%

20%

30%

40%

50%

60%

70%

Foreign exchange reserves / External debt External debt / GDP

Foreign exchange reserves / External debt

. Debt reduction strategies together with external trade oriented policies resulted in a dramatic improvement of SSA countries savings and solvency.

. All recent sovereign bond issues are oversubscribed.. 9 sovereign wealth funds created. 10 to be created soon.

17

Foreign financing to SSA has surged

Foreign financing to SSA has surged

Source: IMF

. Foreign flows: x10 in 10 years.

. Remittances: over US$ 30 billion per year.

. Funds going to the private sector: average return on investment is the highest in the world.

Destination of funds: public vs private

18

Intra-African foreign direct investment is emerging

Intra-African foreign direct investment is emerging

. The share of intra-African investment has more than doubled in the last 8 years at the expense of developed markets.

. Leading investors come from South Africa, Nigeria and Kenya.

Number of projects

19

There is a dramatic shift in trading partners

There is a dramatic shift in trading partners

Destination of SSA exports

Excluding oil exporting countries Oil exporting countries

. Current switch from Europe to BICs. Trade, not aid. Resources driven. . Intra-African trade still low despite efforts of economic communities.

. Diversification of partners has been an engine for growth: reduction of export volatility, better terms of trade, scale economies.

Source: IMF

20

Investment in infrastructure has been crucial

Investment in infrastructure has been crucial

The future new air terminal in Lomé, Togo

. Infrastructure contributed to 50% of SSA past growth.. Current annual spendings: US$ 45 bn.

. Improving infrastructure halfway to regional best practice (Mauritius) would increase GDP by 4.4%*.

* World Economic Forum 2013

21

Africa has a buried treasure

Africa has a buried treasure

A vast potential in underground resources

. Africa is not richly endowed with major minerals like copper, lead, zinc. . Africa’s mining sector accounts for just 10% of the world production.

. «African subsurface per ground km² is estimated at around $25,000 compared to $125,000 in developed countries»*, showing that Africa is underexplored.

* Collier and Venables, 2008

22

Gold 40%

Chromium&Platinum

80% to 90%

Oil 10%

Share of world reserves

Source: Mc Kinsey Global Institute, June 2010

Africa can help feed the world

Africa can help feed the world

SSA: 45% of the potential available land

. Productivity can be boosted: no country in Africa is now achieving more than 30% of the potential yield on currently cultivated areas (World Bank).

. Africa is ripe for a green revolution and the first stage of this revolution is the land rush we are witnessing now.

23

Global surface in millions of ha

438 326 89 456 736

Sub

Sa

hara

n A

fric

a

Latin

Am

eric

a

Men

a

Asi

a

Res

t of

the

wor

ld

2,047

Source: FAO, Fischer and Shah 2010

54%

46%

Potential arable landCultivated land

Labor productivity has been unleashed

Labor productivity has been unleashed

. For the first time since the eighties, productivity of labor increased, and at a higher pace than labor force.

. This gives scope for increased per capita revenues.

Evolution of productivity

1 Used working age population (15-64) as a proxy for labor forceSource: Conference Board World Economy Database; McKinsey Global Institute

24

Demography supports general productivity

Demography supports general productivity

Dependency ratio

. Today, SSA has the worst dependency ratio. Twice as much as China.

. However, it is constantly declining since 1985, giving a boost to Africa’s competitiveness.

1950

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090

2100

30

40

50

60

70

80

90

100

Brazil

Western Europe

China

India

Sub-Saharan Africa

Source: United Nations

Non working population (<15;64<) for 100 people at working age (15-64)

25

Urbanization is stimulating growth

Urbanization is stimulating growth

The development of cities in Africa

. The advantages of the city: it is more cost-efficient to manage transport, food distribution and most services.

. Labor is available.

. If urbanization triggers higher productivity, it is a big challenge.

26

Efforts are made for better education

Efforts are made for better education

Source: United Nations, Renaissance

. SSA at the level of Mexico, Turkey in 1975.

. But there are still concerns about quality: facilities, teachers.

Secondary school gross enrolment rates

27

In Ghana, the mining company AngloGold Ashanti invested around US$ 7 million in a comprehensive program against malaria with the following results:

Better health fosters productivity

Better health fosters productivity

. In Africa, Malaria mortality rate was reduced by 33% since 2000.. Life expectancy at birth in SSA: 49.5 in 1990; 49.7 in 2000; 54.2 in 2010.

. Experience shows that investment in water, sanitation and health yields between 4$ and 60$ per 1$ invested.

Fighting against malaria: a prominent example

28

Cases in AngloGold’s hospital (number per month)

2005

6,603

2009

1,146

Drug expenditures (US$ per month) 55,000 9,800

Work days lost (number per month) 6,983 282

Trade integration is slowly taking off

Trade integration is slowly taking off

Total bilateral African trade

. Africa has integrated with the rest of the world, mostly selling commodities, faster than with itself.

. Nevertheless, intra African trade has grown at the same pace as all African trade at 17% a year for the last 10 years.

Source: Ernst & Young’s 2012 Africa attractiveness survey. Total respondents: 505

29

2002 2003 2004 2005 2006 2007 2008 2009 2010

Former Soviet StatesCentral AmericaEastern Europe

Latin AmericaWestern Europe

Middle EastNorth America

Asia

-50 -40 -30 -20 -10 0 10 20 30 40Respondents with no presence in Africa Respondents wth a presence in Africa

Perception is still a big obstacle

Perception is still a big obstacle

Perception of Africa relative to other regions

Source: Ernst & Young’s 2012 Africa attractiveness survey. Total respondents: 505

. For investors with no presence in Africa, the continent is still viewed as relatively unattractive against all regions.

. It is the contrary for investors having knowledge of Africa.. Major factors: political instability, corruption, difficulty of doing business.

Africa is less attractive than… Africa is more attractive than…

30

What to do next?

31

Millenium Development Goals

Public management

EmploymentSocial protection

Health care

Gender equalityJustice

Capital availibility

Education

Infrastructure

Corruption

Regional integration

Food

Fiscal policy

So many things to do! - The governance challenge

So many things to do! - The governance challenge

Competitiveness

Natural resources

Housing

Security

Entrepreneurship

HIV

32

SSA needs faster, more inclusive growth

SSA needs to implement countless projects to boost its

development

Foreign/local funds and partners are increasingly

available

Implement a new public management method

Implement a new public management method

SSA’s absorption capacity is far too low

Despite this very favorable context, the result has been disappointing: too many projects take too long to implement when they do not fail.

Governments need to implement a new management method focused on the rapid execution of development projects with the creation of highly specialized teams:

Project Delivery Squads

33

Innovate in infrastructure finance

Innovate in infrastructure finance

. Another US$ 40 billion per year need to be mobilized. Possible sources: China, investment funds, local…

. Principle: bottleneck hunting, defragmenting the space (create regional spaces), cost cutting.

Pave

d-ro

ad d

ensi

ty

Tota

l roa

d de

nsit

y

Télé

com

mai

n-lin

e ...

Mob

ile d

ensi

ty

Inte

rnet

den

sity

Pow

er g

ener

ation

c...

Elec

tric

ity

cove

rage

Impr

oved

wat

er

Impr

oved

san

itati

on

0%

20%

40%

60%

80%

100%

Infrastructure density in SSA is weak

(as a percentage of the density of other low income countries)

34

Source: Economic Commission for Africa, African Union 2012

Care about cities, strengthen local governments

Care about cities, strengthen local governments

Source: United Nations data

Urban rural population are growing in SSA

20 0

6925

396

33 1

8043

366

55 6

4370

609

89 7

0911

1 73

713

9 41

417

1 14

120

6 32

224

8 40

729

8 40

235

7 52

042

6 52

250

5 55

059

5 54

469

7 09

081

0 15

293

4 34

21

068

752

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

—

500,000

1,000,000

1,500,000

2,000,000

Rural population Urban population

Thou

sand

s

Urban = 36% of to-tal

. Urban population growth: 3.7%.

. People need housing, water, power, food, jobs…

. Urban planning, land use regulation, property rights… are urgently needed.

35Revolutions come from cities

Africa is a continent,not a country

A Country Assessment Framework to measure diversity

36

Angola

Benin

Botswana

Burkina Faso

Burundi Cameroon

Cape Verde

Central African RepublicChad

Comoros

Côte d'Ivoire

DR Congo

Equatorial Guinea

Eritrea

Ethiopia

Gabon

Ghana

GuineaGuinea-Bissau

Kenya

Lesotho

LiberiaMadagascar

MalawiMali Mozambique

Namibia

Niger

NigeriaCongo

Rwanda

São Tomé and PríncipeSenegal

Seychelles

South Africa

Swaziland

Tanzania

Gambia

Togo

Uganda

Zambia

Zimbabwe

30

35

40

45

50

55

60

65

70

75

80

-5.0 -2.5 0.0 2.5 5.0 7.5

The macro environment

The macro environment

1

2 3

4

Qua

lity

of e

cono

mic

and

soc

ial p

olic

ies

(Sou

rce:

201

2 M

o Ib

rahi

m in

dex

of A

fric

an g

over

nanc

e)

GDP growth (average 2011, 2012, 2013) minus current urban population increase(Source: World Bank data)

Level of growthInsufficient Sufficient

Le

ve

l o

f in

clu

sio

nL

ow

Hig

h

Average

37

Angola

Benin

Botswana

Burkina FasoBurundi

Cameroon

Central African RepublicChad

Côte d'Ivoire DR Congo

Ethiopia

Gabon

Ghana

GuineaGuinea-Bissau

Kenya

Lesotho

Liberia

Madagascar

Malawi MaliMozambique

Namibia

Niger

Nigeria

Congo

Rwanda

Senegal

Sierra Leone

South Africa

Swaziland

Tanzania

Gambia Togo

Uganda

Zambia

Zimbabwe

20

40

60

80

100

120

140

160

180

2001 10 100

The business environment

The business environment

1

2

Ease

of D

oing

Bus

ines

s (w

orld

rank

ing)

(Sou

rce:

Wor

ld B

ank,

201

2 fig

ures

)

Weight of natural resources in the GDP (Log)(Source: World Bank Data, 2010)

Resource curseLow risk High risk

Inc

en

tiv

e t

o

pri

va

te a

cti

vit

yL

ow

Hig

h

Bubble: size of GDP

Average

Ave

rag

e

38

3

4

%%%

« The risk of not going to Africa is to find that it is too late to get there ».

Lord Boateng, former British High Commissioner in South Africa and director of Aegis

Matthieu DelouvrierSwenseemd@swensee.com

39

40

References

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41

. World Investment Report, UNCTAD, 2011.

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. Economic Report on Africa 2012, Economic Commission for Africa, African Union, March 2012.

. Building Bridges, Africa attractiveness survey, Ernst & Young, March 2012.

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. How can Africa compete with China, Marcelo Giugale, Huffington Post, April 2012.

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. The New Business of Africa: Markets and People transforming the continent, Fair Observer, May 2012.

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. Waking up to the maths of malaria, Ed Cropley, AlertNet, June 2012.

. Sub-Saharan Africa Region, Global Economic Prospects, World Bank, June 2012.

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References