Transcript Standard Bank - CIB Pitch Book

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Africa: maintaining momentum
Standard Bank
Harare, Zimbabwe
Yvette Babb*
26 September 2013
Please refer to the disclaimer at the end of this document
*This document is not investment research, as it has not been prepared in accordance with the requirements designed to promote the independence of
research. It therefore constitutes a “marketing communication” as defined by the UK FCA Handbook, and must not be considered a Research Report under
US or any other regulatory regime. U.S. Disclosure: Standard Bank Group Limited does and seeks to do business with companies covered in its reports. As a
result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this
report as only a single factor in making their investment decision
2015/07/17
Africa continues to enjoy strong growth
1
⅔ of African economies will grow by >5% over next 5 years
Average GDP growth 2013 - 2018
Growth in Africa
supported by
strong investment in
infrastructure and
productive capacity,
robust consumption
and new resource
extraction projects
Equatorial Guinea
Swaziland
Eritrea
Sudan
South Africa
Algeria
Lesotho
Seychelles
Comoros
Madagascar
Namibia
Benin
Botswana
Mauritius
Tunisia
Senegal
Cape Verde
Egypt
Morocco
Togo
Burundi
Mali
CAR
Djibouti
Zimbabwe
Cameroon
Guinea-Bissau
Angola
Kenya
Niger
Malawi
Liberia
Ghana
Uganda
Ethiopia
Chad
DRC
Gabon
Burkina Faso
Tanzania
Nigeria
The Gambia
Rwanda
Zambia
Côte d'Ivoire
Guinea
Mozambique
Rep of Congo
Mauritania
Sierra Leone
Libya
São Tomé and Príncipe
South Sudan
-5
0
5
Source: IMF, Standard Bank Research
10
15
20
25
%, y/y

After growing at 5.5% over the past 10 years,
Sub-Saharan Africa is set to expand by on
average 5.7% per annum in the period 20132017

Second fastest growing region in the world,
with developing Asia set to expand by 7.5%
y/y

Three fastest growing economies in the world
in 2013 are African (while half of the twenty
fastest growing economies are African)

The total size of SSA GDP is set to increase
by more than USD500 billion , reaching
USD1.84 trillion by 2017
Improved macro-stability, better risk perception and return draw flows
2
Investment spend supported by increased financial flows
Private flows to SSA
yet to return to precrisis levels of
USD40 billion
(USD32 billion in
2012)
Total net financial
flows reach record
high of close to
USD50 billion as
official flows
increase most
dramatically
USD bn
84
% of GDP
25.0
42
22.5
0
20.0
-42
17.5
-84
15.0
1990
1993
1996
1999
2002
2005
2008
2011
Private portf olio f lows, net
Other private f inancial f lows, net
Direct investment, net
Of f icial f lows, net
Total f lows net
Investment (rhs)
Source: central banks, IMF, Standard Band Research
Infrastructure receives 20% of greenfield FDI investment
3
Stock and source of foreign direct investment (FDI)
Total stock of FDI in
SSA reached
USD402bn, from
USD224bn in 2008
Top investors by FDI Stock
0
Country
Stock of FDI (USD bn)
Share of GDP (%)
Inflows of FDI
accelerated to
USD39bn in the past
2-y, surpassing the
record receipts of
2008 (USD36bn)
15
30
45
USD bn
60
France
USA
UK
Malaysia
South Africa
China
India
Norway
Mozambique,
Mauritania and
Sierra Leone
experienced sharp
growth in FDI
receipts in this
period
Nigeria,
Mozambique, South
Africa, DRC and
Ghana were the
largest recipients of
FDI in 2012
EU and North
America remain
main source of FDI:
51% and 17% of
total stock , 41%
and 23% of total
stock
Japan
Sierra Leone
USD1.9bn
48.5%
Nigeria
Cote d’Ivoire
USD76.4bn
USD7.7bn
27.6%
31.9%
Ghana
USD16.6bn
42.2%
DRC
USD4.5bn
25.1%
Uganda
USD8.1bn
34.7%
Belgium
Kenya
USD2.9bn
7%
Tanzania
USD12bn
38.2%
Top investors by FDI Flow
0.00
France
USD<1bn
USD1-5bn
USD5-10
USD10-15bn
USD15-20bn
USD20-25bn
>USD75bn
Angola
USD1.9bn
1.6%
Namibia
USD3.5bn
28.1%
Zambia
USD11.9bn
59.4%
Botswana
USD1.3bn
7.6%
USA
Malaysia
Mozambique
USD12.6bn
84.8%
India
Germany
Switserland
Cyprus
Japan
Zimbabwe
South
Africa
USD2.6bn
USD139bn
35.6%
Source for all: UNCTAD, Standard Bank Research
China
Denmark
1.63
3.25
4.88
USD bn
6.50
Southern Africa – new giants emerging
4
Growth in Angola, Mozambique and Zambia to remain above 7% over medium term
Natural resource
potential main driver
of private
investment
DRC
Pop
GDP
Infrastructure spend
highly supportive of
growth in short to
medium term
Angola
Pop
GDP
75 m
$18 bn
21 m
$120 bn
Zambia
Pop
14 m
GDP
$21 bn
Zimbabwe
Pop 13 m
GDP $10 bn
Namibia
Pop
GDP
2m
$12 bn
Source: Standard Bank
Botswana
Pop
2m
GDP
$18 bn
Malawi
Pop 17 m
GDP $4 bn

Southern Africa’s growth to remain below 5% over
next 5 years, weighed down by South Africa’s
prospects

Strong growth in volumes of natural resource
output (particularly oil, coal and copper) will support
growth outside of South Africa

Private and public investment in associated
transport infrastructure will also provide significant
boost to economic activity

Angola seeks expanded public works programme
– Public investment to reach USD17bn in 2013
alone
Mozambique
Pop
23 m
GDP
$18 bn

Zambia continues to benefit from strong private
investment in (expansion of existing) mining
operations and ancillary infrastructure. Public
investment targeted at road and rail infrastructure
as well as select power projects.

Natural resource discoveries in Mozambique have
driven unprecedented levels of foreign investment
(in mining operations but more importantly
infrastructure)

Zimbabwe holds significant potential with
economic reforms delivering improved performance
Reform in Zimbabwe delivers improved macro-economic circumstances
5
Inflation remains low (at 1.3% y/y in Sep 13)
The removal of price
controls, the
introduction of the
multi-currency
system and the cash
budgeting system
have been pivotal in
improving macroeconomic stability
Monetary aggregates
Inflation
USD bn
%, y/y
%, y/y
18
4.7
60
14
3.9
45
9
3.1
30
5
2.3
15
0
May-10
Mar-11
Jan-12
Nov-12
Headline inflation
Food & non-alcoholic beverages
Housing, water, electricity, gas & other fuels
Source: Zimstats, Standard Bank
Note: figures from Jan 13 reflect rebased CPI series (Dec 12 = 100)
Sep-13
1.5
Apr-10
May-11
0
Jul-13
Jun-12
Broad Money (M3)
Source: Reserve Bank of Zimbabwe, Standard Bank Research
y/y %
Export growth improved, but was outpaced by imports
6
Growth in exports remains subdued
Exports reached
USD814m in Q1:13,
down from
USD818m in the
same period a year
earlier
Imports on the other
hand increased to
USD1.66bn in Q1:13.
from, USD1.59bn
last year
Close to half of
imports are in fuels,
vehicles, machinery
and electrical
equipment
Exports
8.8
8.8
USD bn
Imports
USD bn
After narrowing in
2012 to USD2.&bn,
the trade deficit is
likely to widen
marginally in 2013
as imports
accelerate further
6.6
6.6
4.4
4.4
2.2
2.2
0.0
0.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Exports are
concentrated in
minerals and
tobacco (80% of
total)
Other
Animal,vegetable fats and oils
Electrical equipment
Vehicles
Fertilizers
Plastics
Cereals
Machinery
Mineral fuels, oils
Source: International Trade Centre, Zimstats, Standard Bank Research
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Precious stones
Ores
Cotton
Sugars
Mineral fuels etc
Other
Tobacco
Nickel
Iron and steel
Stone, lime and cement
Printed books etc
Source: International Trade Centre, Standard Bank Research
Zimbabwe: foreign direct investment trickles in
7
Macro-economic stability associated with increased FDI to Zimbabwe
FDI inflows reached
USD400m in 2012,
from USD387m in
2011 and USD52m in
2008
Stock of foreign investment
Foreign direct investment inflows
USD m
USD m
480
2 800
360
2 100
240
1 400
120
700
FDI stock as a share
of GDP reached
26.4%
FDI inflows remain
insufficient to
finance the large
current account
deficit (USD2.3bn in
2012)
Private capital
inflows, in the form
of short-term debt,
remain the main
source of financing
0
0
1991
1994
1997
2000
Source: OECD-DAC, UNCTAD, Standard Bank
2003
2006
2009
2012
1991
1994
1997
2000
2003
2006
2009
2012
Zimbabwe critical to regional transport infrastructure network
Increased demands on road and rail infrastructure to access port facilities
Regional
infrastructure plans
aim to connect large
urban centres, while
further facilitating
trade in goods with
rest of the world
Sources for all: African Energy, Standard Bank
8
Economic infrastructure: power constraints
9
Widespread shortage of reliable electricity supply undermines private investment
Access power
remains very low
(31% in SSA), while
quality of power
supply is weak
Power generation
Access to electricity
Uganda
Malawi
DR Congo
Mozambique
Tanzania
Burkina Faso
Lesotho
Kenya
Other Africa
Ethiopia
Zambia
Madagascar
Togo
Benin
Angola
Eritrea
Namibia
Sudan
Gabon
Congo
Zimbabwe
Senegal
Botswana
Cote d'Ivoire
Cameroon
Nigeria
Ghana
South Africa
Mauritius
African countries
endured on average
8.6 power outages
per month, causing
severe loss in
production time
Investment in power
generation and
distribution capacity
rising in line with
national a regional
policies
Rural electrification
processes will see
improved access to
power, which in turn
will materially
change consumer
demands
9
9
11
12
14
15
16
16
17
17
19
19
20
25
26
32
34
36
37
37
42
42
45
47
49
51
61
75
99
0
Sources for all: African Energy, IEA
20
40
60
% of population
80
100
Access of capital remains due to sovereign risk perceptions
Addressing social and economic needs requires strong institutions and stable politics
Governance indicators
Export credit ratings
Sources for all: African Energy, Mo Ibrahim Foundation, Fund for peace, Belgian Export
Credit Agency, Standard Bank Research
10
External finance needed to complement domestic resources
11
Low domestic savings and limited ability to increase fiscal revenue collections
International finance
Private
Workers
Remittances
FDI
Official
Portfolio
Equity
Debt
Bonds
Other Official
Flows (OOF)
Grants
Loans
Export
Credits
Concessional
Sources: Standard Bank
Other
OOF
Market rate
Official development assistance
(Non-OECD and OECD)
Grants
Concessional
loans
Regaining access to international capital flows key
12
Clearing outstanding arrears first step in re-establishing financial relationship
Zimbabwe remains
in debt distress with
total external debt
equal to USD6.05bn
of which the
majority of which is
in arrears (77%)
These outstanding
arrears continue to
constrain the
relationship with
international
creditors and
undermine
Zimbabwe’s risk
profile
Zimbabwe's external arrears (USD m) December 2012
Bilateral
Paris Club
Non-Paris Club
Multilateral
Total
Source: Ministry of Finance
Total
2 572
109
2 006
IMF
125
AfDB
567
EIB
268
World Bank
956
4 687
Economic reform agenda
Policy framework to be guided by key policy documents and monitored by IMF
2013 budget
foresees:
USD3.86bn in
revenue and
USD3.93bn in
expenditure
Special measures to
meet financing gap
in 2013 budget
include issuance of
USD40m in 1-y Tbills (issued to NSA
and Old Mutual),
introduction of
temporary fuel levy
Unverified domestic
arrears reached
USD350m in Apr 13
(from USD211 in Dec
12, of which
USD169m were
verified) *

IMF programme (in place until Dec 13) focussed on:
– Restoring Fiscal Sustainability and Strengthening Fiscal Management:
►
non-concessional external borrowing to not exceed more than 3% of GDP,
►
Service some of existing external debt and clear domestic arrears
►
Gradual re-accumulation of foreign exchange reserves
– Increasing Financial Sector Stability
– Structural Reforms
►
Fiscal reform (public finance management, payroll and human resource management systems)
►
Increase transparency in diamond sector
– Reestablish relationship with external multilateral creditors with remaining current with new creditors
►
Implementation of Zimbabwe Accelerated Arrears Clearance, Debt and Development Strategy
(ZAADDS) and Zimbabwe Accelerated Reengagement Programme (ZAREP)
External loans
contracted in the
recent past include
Afreximbank
($14.5m), China
Exim ($91.8m), PTA
bank ($3.4m) and
BADEA ($0.6m)
*A $100m short-term bridge loan intermediated by a domestic bank was used to clear some arrears in Dec 12
13
14
Summing up, it is clear the future holds great opportunities. It also holds pitfalls. The
trick will be to avoid the pitfalls, seize the opportunities, and get back home by six
o'clock. ~Woody Allen
15
Thank you for your time
Yvette Babb
Africa Strategist
Standard Bank Research
[email protected]
+27 (11) 378 7239
Source: Standard Bank
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17
Direction of Trade
18
South Africa remains Zimbabwe’s main trading partner
Trade deficit with
South Africa
reached USD3.6bn
in 2012, from
USD5.1bn in 2011,
and has continued
to narrow into 2013
has imports decline
Exports
Imports
8.8
USD bn
USD bn
Total trade with
South Africa
reached USD5.9bn
in 2012, down from
peak of USD7.2bn in
2011
7.2
6.6
5.4
4.4
3.6
2.2
1.8
0.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
South Africa
Zambia
Kuwait
Other
United Kingdom
China
India
USA
Mozambique
Botswana
Source: International Trade Centre, Zimstats, Standard Bank Research
0.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
South Africa
United Arab Emirates
China
Mozambique
Zambia
Other
Source: International Trade Centre, ZimStats, tandard Bank Research