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AFRICA MACRO

ECONOMIC TRENDS Foreign Direct Investment Foreign Direct Investment has soared in Africa in recent years, climbing 259.1% between 2000 and 2010 to $554 billion. Despite this rapid growth, Africa accounts for just 2.9% of all FDI (measured in book value) in the world. As a result, Africa is still largely under-invested territory. For example, the total FDI in all of Africa is 6.1% below the level of the Netherlands, which has a population of only 16.65 million people. Furthermore, much of foreign investment is concentrated in the mining, oil, natural gas, and telecommunications sectors. With the exception of South Africa and Egypt, there is relatively little investment in manufacturing. Together South Africa, Egypt and Nigeria, account for 48% of all FDI in Africa. Foreign Investment has been particularly strong in the major oil producers such as Libya (as a result of the end of economic sanctions), Sudan, Angola and Algeria (which also has substantial natural gas deposits).

FDI (Book Value) in Select African Nations 2010 % chg from % of total FDI in Country (US $bns) 2000 Africa South Africa 132.396 204.7 23.9 Egypt 73.095 266.3 13.2 Nigeria 60.327 153.6 10.9 Morocco 43.023 375.3 7.6 Angola 25.028 213.7 4.5 Algeria 19.498 451.3 3.5 Sudan 20.743 1383.8 3.7 Libya 19.342 4388.7 3.5 Other Africa 160.52 29.2 Source: UN Conference on Trade and Development (UNCTAD) Inflation Many African currencies were decimated by inflation. The most notable is Zimbabwe where the Zimbabwe dollar succumbed after inflation reached an estimated annual rate of 89.7 sextillion percent (89,700,000,000,000,000,000,000%) in midNovember 2008. This was the second worst hyperinflation episode since 1900, bested only by the great Hungarian inflation of 1946 when prices were doubling every 15 hours. The Zimbabwe government was finally forced to abandon the Zimbabwe dollar and adopt the US dollar as its currency which ushered in economic and fiscal stability. The South African rand is also widely used. Other notable episodes of inflation that destroyed currency values occurred in Angola where the average annual increase in consumer prices was 1,149.9% per year between 1992 and 2000 and the Democratic Republic of the Congo, which recorded an annual average inflation rate of 23,773.1% in 1994. Joab’s Technologies and Research, Natu Court Flat B.

POLITICAL AND ECONOMIC OVERVIEW

While inflation in many Africa countries is well above that of the major OECD nations, it is not as big of a problem as it was in the 1990s. The highest inflation rate presently in Africa is in South Sudan, where prices jumped by 61.5% in the year to September. Ethiopia has the second highest rate with a 40.1% rise in the year to September. The nations with the lowest inflation rates tend to be those in West African and Central African CFA zones, resulting from their link to the Euro. The IMF forecasts an annual average rate of inflation of 2%-3% in 2012 for these countries.

Average Annual Inflation Rates Country South Africa Nigeria Egypt Algeria Morocco Angola Sudan Tunisia Ghana Kenya Ethiopia Cameroon Source IMF

Average 2007-2011 7.2% 10.8% 12.3% 4.4% 1.9% 13.6% 13.3% 4.0% 13.2% 9.2% 19.7% 2.7%

2012 5.0% 9.0% 11.3% 4.3% 2.7% 13.9% 17.5% 4.0% 8.7% 7.4% 31.2% 2.5%

Lower External Debt Levels Many African countries have seen their debt burdens eased under the terms of the enhanced Heavily Indebted Poor Country (HIPC) Initiative which was launched in 1996 by the IMF and World Bank, with the objective of “ensuring that no poor country faces a debt burden it cannot manage.” Since its inception, multilateral organizations and governments have worked together to lower external debt levels to more sustainable levels. In 2005, the HIPC Initiative was supplemented by the Multilateral Debt Relief Initiative which provides 100% debt relief on eligible debts owed to the IMF, the World Bank and the African Development Bank. To be considered for HIPC assistance, a country must face “an unsustainable debt burden” which is defined as having an external debt that is more than 150% of the exports of goods and services or more than 250% of fiscal revenue, “establish a track record of reform and sound policies through IMF and IDA (International Development Agency) supported programs” and have developed a Poverty Reduction Strategy Paper (PRSP). If these criteria are achieved, a country has been deemed to reach the “decision” point, and is thereby eligible for interim debt relief. In order to reach the “completion” point and receive “full and irrevocable” debt reduction, a country must “establish a further track record of good performance under Page 49 of 104

Equity Research in Africa, Like an Electric Train Africa is picking up, a True Emerging Market  

Economic analysis of Africa as a whole, as well as of particular countries and sectors, with special regard to their potential as investment...

Equity Research in Africa, Like an Electric Train Africa is picking up, a True Emerging Market  

Economic analysis of Africa as a whole, as well as of particular countries and sectors, with special regard to their potential as investment...

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