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Op-Ed

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

Gold: Positioned to thrive in low-interest-rate environment

Rising concerns surrounding the health of the global economy is another one of the engines that will help drive Gold prices

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Gold: Positioned to thrive in low-interest-rate environment

The investment case for Gold is set to remain robust as speculation mounts that major central banks will ease monetary policy in an effort to counter a global economic downturn.

The yellow metal shone with extreme intensity during the second quarter of 2019, rallying roughly 9 per cent to levels not seen above $1,435 in over six years, thanks to an environment that included ongoing global growth concerns, geo-politics, trade tensions and Dollar weakness.

Weak macro data, which reflects downward revisions in global growth over the past 12 months, is prompting a handful of central banks including the European Central Bank (ECB), Federal Reserve (Fed) and Reserve Bank of Australia (RBA) to signal a willingness to ease monetary policy and increase economic stimulus to support growth.

In a low-interest-rate environment filled with chronic uncertainty, Gold can climb another 5 per cent over the course of Q3 – claiming the title as one of the high flyers among safe-haven assets, in competition with the Yen. 

Will Gold’s fortunes hang on the Fed’s actions?

Will Gold’s fortunes hang on the Fed’s actions?

What investors need to watch as the second half of the trading year gets underway are the actions of the Federal Reserve. Will the US central bank confirm market expectations and cut interest rates as early as July? If it fails to do so, Gold risks rapidly surrendering its second-quarter surge.

Essentially, if the Fed sits on its hands beyond July, profits will be taken from the table on the $120+ rally that transpired in Gold throughout June. 

Unfavourable global conditions to keep Gold in fashion

Rising concerns surrounding the health of the global economy is another one of the engines that will help drive Gold prices.

Although a sense of optimism has returned after the Trump-Xi Jinping meeting at G20 ended in a trade truce on tariffs, it does not change the reality that global growth is decelerating.

The World Bank recently downgraded it’s 2019 world growth forecast to 2.6 per cent from 2.9 per cent and if the recent disappointing PMI releases across the manufacturing sectors in Europe, China and the United States are anything to go by, global growth is moving towards the lower bound of 2 per cent as the decade draws to a close.

Warning signals over potential cracks in the largest economy in the world, indications of tepid growth in the EU, disappointing data from China’s manufacturing sector and lacklustre growth in the United Kingdom amid Brexit-induced uncertainties are likely to sweeten appetite for safe-haven assets. 

It’s all about central bank stimulus and lower yields 

In the longer term, Gold should also find support from lower treasury yields, especially if the 10-year treasury dips below 2 per cent again as persistent growth fears and trade developments result in lower interest rates across the globe.

While the outlook for the precious metal points to the upside, potential roadblocks on the horizon include easing trade tensions and signs of global growth stabilizing. Both outcomes would pose a challenge to buyers.

What do higher Gold prices mean for African markets?

What do higher Gold prices mean for African markets?

Gold-producing nations on the continent, like South Africa and Ghana will certainly benefit from higher prices.

Economic conditions in Africa’s most industrialised economy remain unfavourable thanks to a tornado of domestic and external risks. Economic growth contracted by 3.2 per cent during the first quarter of 2019 thanks to a sharp decline in manufacturing, agriculture and mining.

Given how Gold remains one of South Africa’s most valuable exports, rising Gold prices have the potential to stimulate growth – especially when factoring in how exports account for roughly 30 per cent of GDP.

Economic growth in Ghana remains robust with GDP expanding 6.7 per cent during the first quarter of 2019. With Ghana claiming the title of Africa’s top Gold producer, higher prices will be supportive of the mining sector which expanded 20.9 per cent in Q1.

When adding to the fact that roughly 5.7 per cent of Ghana’s GDP and 40 per cent of gross foreign earnings are acquired from the mining sector, Gold’s bullish outlook brightens Ghana’s growth prospects.

Gold bulls to dream big and reach for the stars 

Taking a look at the technical picture, Gold remains firmly bullish on the monthly charts as there have been consistent higher highs and higher lows.

Prices have scope to push higher on the monthly charts should $1360 prove to be reliable support.

For as long as bulls are able to defend $1360, there should be enough confidence to challenge $1430 and $1500 – a level not seen since April 2013. Alternatively, a decline back below $1360 will most likely swing open the doors towards $1324 and $1300, respectively.

This bullish setup becomes invalidated if prices find comfort below $1300.

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

Remembering Abdirahman Osman: Reformer and Friend

People close to Mogadishu’s slain mayor said he never complained about the huge burden of getting the city back on its feet.

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Abdirahman Omar Osman, spokesperson of the President of Somalia addresses the Somali media during a visit by the African Union's Peace and Security Council (PSC), on it's first visit to the Somali capital Mogadishu, with the President of Somalia in 2013.

Abdirahman left his family in London to answer the call to rebuild Somalia several years ago. He did so at great personal risk and in spite of the fact that he was leaving a comfortable life and a good job to take on a position in Mogadishu with no salary and immense danger.

He told me that he did so because he believed that there was hope for Somalia, that there was work to be done and that the biggest chunk of that work had to be done by Somalis themselves.

Everyone knew Abdirahman by his nickname, Engineer Yarisow. In Somalia, virtually everyone has a nickname; it’s an affectionate way that Somalis relate to each other. Never mind the nicknames can be as rude as they are hilarious: they are often based on one’s physical shortcomings. If you have a big nose, for instance, your nickname in Somalia will likely be ‘fat nose’ or something along those lines.

Abdirahman was a great man of summary stature, his nickname, therefore, was naturally ‘short man’ – Yarisow. He was an important man whose door was always open to those who came looking for him, particularly those in the media industry. He was kind, committed and deeply respectful to everyone. He was our friend.

We last met while he was still the Minister for Information, Culture and Tourism. We had coffee in his office and we talked about the editorial I penned on his behalf for the EU-AMISOM Special Edition Magazine. We joked about having arosto at a Somali restaurant in Harrow, near where his family lived and where I had some relatives.

He went on to become the Mayor of Mogadishu and the Governor of the Banadiir region. It was in this capacity that he breathed his last, having been targeted by religious extremists. Eng Yarisow always knew that the rebuilding of Somalia would require sacrifice and would come at great cost to many. He knew that the toll for a new Somalia would be high. He has paid it at the highest price: with his life.

Rest well aboowe. Your work and your name is indelibly carved in the hearts of your people, your family, friends, colleagues and all who knew you. May Allah grant you the highest place in Janna. Amin.

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Op-Ed

Will oil prices help or harm Nigeria’s economy in Q3?

Global Oil prices looked tired, exhausted and ready for an early summer break during the second quarter of 2019

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Will oil prices help or harm Nigeria’s economy in Q3?

Global Oil prices looked tired, exhausted and ready for an early summer break during the second quarter of 2019 as global growth fears overshadowed supply disruptions and ongoing OPEC supply cuts. At the time of writing, Oil prices remain shaky and vulnerable despite OPEC+ latest decision to extend production cuts until March 2020.

The crucial question is whether Oil prices will ever recover and trade back towards the $70+ levels. That depends less on geopolitical tensions in the Middle East and more on whether the US and China can reach a trade deal, settling disputes over tariffs and opening the door to continued global growth.

In this case, it’s likely that Oil prices will be injected with a renewed sense of confidence on the back of boosted global growth expectations and demand for Oil. But what if the current circumstances persist and the US-China trade disputes continue throughout the second half of 2019? 

Taking each scenario one-by-one, starting with the upside for Oil prices, Nigeria’s economy could benefit considerably if a US-China trade deal is reached and global growth expectations become brighter. The manufacturing sectors in the US and China are the Oil-gobbling engines which drive demand for international Oil suppliers.

China is the world’s top crude Oil consumer, importing more than 50 per cent of its consumption, part of which comes from Nigeria. In the fourth quarter of 2018, Nigeria exported ₦23.5 billion worth of crude Oil to China and remains a major trading partner to the Asian giant. It’s likely that if China’s economy roars back to life, Nigeria’s growth would see more long-term support, benefiting foreign exchange reserves and the naira.

Although unlikely, if a trade deal were to be announced early in the quarter, it’s possible the nation’s 2019 budget would also see ample support from increased Oil revenues from China. This argument doesn’t apply to the US which has considerably reduced its crude Oil imports from Nigeria as it heads towards energy independence, relying instead on domestic production to meet its own needs.  

If you take the negative outlook on Oil, it’s more likely the rise in Oil prices is a temporary result of supply shortage fears and the prevalent trend in Q3 will be downward pressure from concerns over a global recession. In this unfavorable scenario, the world’s two largest economies do not reach a trade deal in the third quarter and aggregate demand for Oil continues falling as it tracks economic weaknesses in China and the US.

As demand for Oil is whittled away, Nigeria’s foreign exchange reserves may be negatively impacted, along with the Naira, the 2019 budget, and most importantly GDP growth.

In terms of the national budget sheet, expenses like the petrol subsidy may take the limelight as they drag on revenues, overshadowing growth and threatening fiscal stability. 

There’s another factor we haven’t talked about so far but it’s significant in terms of Oil market economics. Oil sales are denominated in US Dollars. Recently, the currency has weakened against its rivals, meaning that Oil is more affordable and possibly giving traders an incentive to snap up contracts at current levels before they rise further.

If the Dollar bears have their way and the currency keeps declining, Oil price benchmarks could see further support in the third quarter. The impact of a weaker USD might not be as strong as a US-China trade deal, but it could feed positively into Nigeria’s Oil revenues and go some way to counter possible losses from ongoing global recession fears. 

To sum up, Nigeria’s foreign exchange reserves, currency, growth, and budget will face headwinds should trade disputes persist.

However, provided the USD keeps weakening, there’s scope for support from higher Oil prices based on bargain hunting. There’s always the possibility that the US and China could decide on a trade deal, if this happens sooner than later, Nigeria’s economy would benefit accordingly. 

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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