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What are the critical issues facing Africa in 2019?

Africa cannot rely on the rest of the world to drive our economic development.

Andrew S. Nevin

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People cross the Farafenni Bridge after its inauguration by Senegal's president and Gambia's President on January 21, 2019, in Farafenni - AFP

There has been a lot of good news around Africa recently, and many countries are achieving high economic growth rates – Senegal, Ivory Coast, Kenya, and Ethiopia come to mind. And this is not happening by accident – over the last decade there has been an incredible paradigm shift in most countries, with a recognition that:

  • a country can only be prosperous with a strong private sector – that is, a model of state-led growth cannot succeed
  • countries need to compete globally to build their private sectors, including creating a conducive business environment

This evolution in thinking has been supported with progress on many key measures, including the World Bank Ease of Doing Business rankings of African countries. Rwanda in particular needs to be cited for its outstanding performance, jumping from 41stin the world to 29th, ahead of countries like France, Netherlands, and Switzerland– remarkable (Mauritius remains the top African country at 20th).

However, despite the considerable progress Africa has made, the reality is that we are not growing fast enough.

According to the AfDB’s 2019 African Economic Output report, 2018 growth rate was 3.5% and the projected growth rate for 2019 is 4.0%. This is still below the growth rate required to keep unemployment stable on the continent.

The reason we continue to struggle to reduce unemployment despite the progress in approach to the continent’s economy and the bright spots across the continent in the last decade is because the giants on Africa ; Nigeria and South Africa continue to slow down the continent’s economy.

In the case of both Nigeria and South Africa, 2018 growth was only 1.9%, dragging down the continent’s performance. We will have ample time during the year to examine the country specific issues holding back Nigeria, South Africa, and others. 

For now, let’s examine the overall economic issues for Africa. Here are the 2 biggest issues:

  • The global economic headwinds, their impact and implications for Africa
  • The incredible achievement-in-making that is the Africa Continental Free Trade Agreement (AfCFTA)

Let’s discuss each of these in turn.

In 2017, there was the concept of globally synchronized growth – that is, strong economic growth occurring in all the major markets – USA, EU, and China – lifting economies around the world. There was an optimism that after 9 years of anemic growth following the Great Financial Crisis (GFC) of 2018, global growth was going to take off. This optimism proved to be short-lived.

As we enter 2019, we face a barrage of global negative economic news that has been building for some time. Some of the issues include:

  • Slowing growth in Europe; this was inevitable given Europe’s rapidlyageing population which seems to have taken leaders by surprise. Slowing growth is a particular problem when combined with high indebtedness, which is a problem in the Eurozone, most acutely in Italy.
  • Fiscal challenges in the US, where the structural deficit at the Federal level has been exacerbated by recent tax cuts, cuts which are unlikely to lead to higher growth, basically because wealthier people don’t spend much more as they earn more
  • High and opaque levels of indebtedness in China. China’s economic miracle for the last decade has relied on ever increasing amounts of debt, often concealed in opaque structures. Recent economic data show this construct is coming to an end, and China’s mal-investment (particularly in real estate) may finally be catching up.

Of course, we all know 3 economists have 10 opinions about the future and it is not our purpose here to predict economic developments in 2019-2020.

The implication for Africa, however, is that Africa cannot rely on the rest of the world to drive our economic development. We need to build a resilient economy that will allow Africa to increasingly proposer, independently of what happens in the rest of the world.

In fact, if we look a little further in the future, by 2050 there will be 3 major poles of population in the world – Indian sub-continent, East Asia (China, Japan, Korea, Vietnam primarily), and Africa. Each of these poles will have 2 billion people. The population in the rest of the world will be shrinking (and shrinking in East Asia as well).

In this world, how can Africa prosper? Well, if we sell raw materials to others – with little or no value added – we will continue to be poor. So we need to sell higher value goods and services. Who will we sell these to? It is unlikely we will sell into Europe and North America because with aging and shrinking populations, it is challenging to sell into these markets (which would require displacing existing suppliers in a shrinking market). Would we be able to sell to China? Unlikely. India? Perhaps some things but not enough.

The market that is most critical for our prosperity is in fact Africa. Africa can only become richer if Africans sell to Africans. There is no other path.

This brings us to the African Continental Free Trade Agreement (AfCFTA). We believe that Africans should applaud themselves with the remarkable progress AfCFTA has made in a very short period of time. In a world where divisions and fractures between people are becoming greater and greater, and politicians exploit these divisions to sow hatred and discontent, Africa has chosen a different path.

The Africa Union and Afrexim Bank have stepped up to drive this new pan-Africanism, based on economic prosperity and the private sector. In a very short period of time,

  • AfCFTA was signed in Kigali, Rwanda on March 21, 2018
  • 49 member- countries of the African Union have signed the AfCFTA (SEE MAP)
  • 18 countries have ratified the agreement (The proposal will come into force after ratification by 22 of the signatory states)
  • UNECA predicts a 52% increase in intra-African trade by 2022 if AfCFTA is implemented

This is remarkable progress and all those who are driving this new pan-Africanism should be applauded.

So as we look forward to 2019, Africa faces an uncertain economic environment in the rest of the world. But we must use our cohesion and drive the progress of AfCFTA to ensure our future prosperity.


The views expressed in this piece are the author’s own and do not necessarily reflect News Central’s editorial stance.

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Op-Ed

Oil sensitivity set to intensify on conflicting themes

Oil markets are poised to remain highly sensitive and reactive to supply and demand side factors ahead of the OPEC meeting this month.

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Oil sensitivity set to intensify on conflicting themes | News Central TV

It has been a rollercoaster trading week for oil markets as investors tussled with conflicting fundamental themes pulling and tugging at the commodity.

Oil prices initially collapsed roughly 4 per cent mid-week thanks to an unexpected rise in U.S. crude stockpiles and a gloomy outlook for global oil demand. Bulls were later thrown a lifeline after geopolitical tensions in the Middle East rekindled concerns over potential supply shocks.

Oil markets are poised to remain highly sensitive and reactive to supply and demand side factors ahead of the OPEC meeting this month. With oil trading at depressed levels despite the recent rebound, OPEC+ may have no other choice but to extend supply cuts in an effort to prevent any further downside shocks.

Related: Nigeria foreign reserves rise in May; Gold Shines

For as long as Nigeria remains reliant on oil sales as a source of growth, the weakness in oil exposes the nation to significant downside risks. Should oil prices sink deeper into the abyss, Nigeria’s fragile recovery, exchange rate stability and improving sentiment will be under threat.

Looking at the technical picture, WTI Crude is trading marginally below $53.00 as of writing. Repeated weakness below this level is likely to encourage a decline towards $52.00 and $50.60.

Dollar steady ahead of retail sales 

dollar

The Dollar edged higher against a basket of major currencies today as trade tensions and global growth concerns supported the flight to safety.

While the Dollar is likely to remain supported by safe-haven flows amid persistent trade tensions, the question is for how long? With the Fed speculated to cut interest rates and recent economic data from the United States nothing to celebrate about, the Dollar is running on borrowed time.

Related: Nigeria’s week ahead: ECB meeting and Oil in focus

Much attention will be directed towards the latest U.S. retail sales figures on Friday which should offer insight into the health of the U.S. economy.

Should the report disappoint, the Dollar is likely to weaken as expectations mount over the Federal Reserve cutting interest rates this year.

Commodity spotlight – Gold 

Commodity spotlight – Gold

This has been a mixed trading week for Gold due to the growing sensitivity of global risk sentiment.

Related: Investors “Sell in May and Go Away” as risk aversion intensifies; Oil collapses

The precious metal has the potential to conclude the week on a positive note if the pending US retail sales report fails to hit market expectations. Looking at the technical picture, Gold is likely to test $1347 if $1324 proves to be a reliable support.

The views expressed in this piece are the author’s own and do not necessarily reflect News Central TV’s editorial stance.

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Op-Ed

Nigeria’s week ahead: ECB meeting and Oil in focus

The week kicks off with the US ISM Manufacturing PMI for May which is projected to hit 53.0

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Nigeria week ahead: ECB meeting and Oil in focus
(File photo)

It will be another busy week for financial markets as investors grapple with trade tensions, Brexit, depressed oil prices and concerns over slowing global growth.

The week kicks off with the US ISM Manufacturing PMI for May which is projected to hit 53.0. Appetite for the Dollar is likely to take another hit if the PMI figures fail to meet market expectations.

Investors will be paying very close attention to Fed Chair Powell’s speech on Tuesday for fresh insight into the Fed’s monetary policy path. Investors will be paying very close attention towards Powell’s tone, given how concerns are rising over trade tensions potentially impacting the US economy. 

The biggest event risks this week will be the European Central Bank meeting and US jobs report on Friday. The Dollar could end up depreciating further if the US jobs report disappoints and fuels speculation over the Fed cutting interest rates this year. Naturally, this will be good news for emerging market currencies with the Naira falling into the category.

The economic calendar for Nigeria will be relatively light this week with the Stanbic IBTC Bank PMI scheduled for release on Thursday. Although the economic docket is light, external factors in the form of trade tensions, the Dollar and most importantly oil prices will impact sentiment towards the nation.

Falling oil prices are set to place the Nigerian economy in a difficult position. It is widely known that Nigeria relies heavily on crude oil exports which account for over 90% of exports earnings and over 70% of government revenues.

A sharp decline in oil prices could threaten Nigeria’s economic recovery while disrupting exchange rate stability. The potential decline in foreign exchange reserves from lower oil is likely to weaken the Naira, consequently translating to rising inflationary pressures. Consumers and businesses will feel the pain as inflationary pressures mount, while the drop in foreign reserves may complicate the Central Bank of Nigeria’s efforts to defend the Naira.

For Nigeria to insulate itself against such external risks, there needs to be a greater push on diversifying away from oil reliance to other sustainable sources of economic growth with Agriculture being one of several solutions. Elsewhere, Gold is glittering as geopolitical risk factors and concerns over slowing global growth accelerate the flight to safety.

This precious metal has turned bullish on the daily timeframe as is positioned to push higher should $1,300 prove to be reliable support. A vulnerable Dollar should inject bulls with enough inspiration to push Gold towards $1,324 in the short to medium term.

The views expressed in this piece are the author’s own and do not necessarily reflect News Central TV’s editorial stance.

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Op-Ed

Nigeria foreign reserves rise in May; Gold Shines

Rising foreign reserves should provide the extra ammunition needed for the Central Bank of Nigeria (CBN) to defend the Naira

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Nigeria foreign reserves rise in May; Gold Shines

The Naira is set to witness further stability against the Dollar after Nigeria’s foreign exchange reserves increased by $295.12m to $45.087bn in May.

Rising foreign reserves should provide the extra ammunition needed for the Central Bank of Nigeria (CBN) to defend the Naira against a tornado of domestic and external headwinds. Nevertheless, the nation still remains exposed to oil price volatility. It is widely known that Nigeria relies heavily on crude exports which account for over 90% of exports earnings and over 70% of government revenues. The fact that oil prices are sinking towards $55 today may lead to a fall in reserves in the coming months which has the potential to impact exchange rate stability, inflation, and economic growth.

Dollar blinks and loses hold on throne 

Dollar bulls were nowhere to be found today despite risk aversion accelerating the flight to safety. Market fears over Trump’s trade disputes with Mexico and China negatively impacting the US economy are weighing on the US Dollar.  While the Greenback still remains a prime destination of safety in times of uncertainty, the question is for how long? When keeping in mind how the Fed funds futures are currently pointing to a near 70% chance of a rate cut by September, the Dollar’s upside may be limited. In regards to the technical picture, the Dollar Index has the potential to sink back towards 97.50 if a weekly close below 98.00 is achieved.

Commodity spotlight – Gold 

Gold is extended gains on Friday amid news of unexpected tariffs on Mexican goods, while ongoing US-China trade tensions continued to support safe-haven demand. 

A depreciating Dollar is supporting the upside with prices trading marginally below $1300 as of writing. Market expectations over the Fed cutting interest rates in 2019 coupled with concerns over slowing global growth are likely to ensure Gold remains buoyed moving forward. Technical traders will continue to closely observe how Gold behaves below the $1300. A solid breakout above this point should signal a move higher towards $1324.

Oil set to register first monthly loss of 2019 

Oil is on track to register its first monthly loss of 2019 with WTI Crude sinking towards $55 thanks to Trump’s newly announced tariffs on Mexico and concerns over rising US gasoline stockpiles.

It is becoming increasingly clear that oil markets remain highly reactive to news around supply and demand factors. Such market dynamics will frame the upcoming OPEC meeting in June as a pivotal event that will shape Oil’s outlook for the rest of the year. Even if OPEC+ decide to extend their supply cuts into the second half of the year, this may be overshadowed by concerns over US-China trade tensions impacting the demand for oil as global grows.

The views expressed in this piece are the author’s own and do not necessarily reflect News Central’s editorial stance.

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