By Tapiwa Shamu, Principal: Corporate Finance at Nedbank Corporate and Investment Banking
You would be forgiven for believing that the only presidential race that took place in 2016 was the one in the United States. It would probably come as a surprise that in 2016 no less than a dozen presidential elections were scheduled in Sub-Saharan Africa. Though not without their own controversies (some of the more notable ones included the imprisonment of an opposition leader for baby trafficking, accusations of the military vote being overseen by officers to ensure the “right” vote, numerous boycotts and claims of vote rigging), all but that of the Democratic Republic of Congo (postponed until 2018) were completed without catastrophe. Given the common perception of political risk in Sub-Saharan Africa, with very few notable exceptions, it is a symptom of the current post-Brexit global political turmoil that it was the result of the US presidential race that is likely to have the greatest potential impact, positive or negative, to the Sub-Saharan African economy and, by correlation, influence the volume and nature of M&A activity in the continent as we enter 2017.
Perhaps less startling than Donald Trump’s electoral victory is that opinion, as it was for the American electorate in respect of the United States, is divided in Sub-Saharan Africa about the economic prospects of the continent under his presidency. An article by Peter Vale on CNN’s “The Conversation” warns that “the next four years promise to test Africa’s place in the world” as a result of Africa sliding down the list of priorities in US foreign policy (Vale, 2016). In contrast, Kathy Davey, Africa Portfolio Manager at Ashburton Investments, concludes that, paraphrasing a recent interview she had with Bruce Whitfield on South African Talk 702’s “The Money Show” (Davey, 2016), the few policy initiatives in place for the US with Africa are insignificant to Trump’s “make America great again” thrust to such an extent that they can largely be ignored. If there is any general consensus it is that Africa should not expect any positive efforts from a Trump presidency to increase US involvement or support for Sub-Saharan African economies. At best, Trump will leave things well alone. At worst, dismantling trade and aid commitments to Africa may provide quick propaganda wins in delivering on the promise to bring jobs back to the US and reduce waste respectively.
Despite being the first African American President of the US and, more so, Barack Obama having direct parental lineage from Kenya, US foreign policy with respect to Sub-Saharan Africa under his presidency was remarkable for its paltriness. The single most important economic initiative during his term was Power Africa, an ambitious programme launched in 2013 to add 10000 MW of power and supply electricity to 20 million households in Africa within a period of five years. The intended cost of the programme was a decent US$7 billion. The programme has so far only connected approximately 400MW of power and faces political and economic challenges. To its credit, the programme has been increased to a target 30,000 MW and a budget of US$9.7 billion, but timelines have been extended to 15 years running until 2030. The bell weather trade support legislation, the African Growth and Opportunity Act (“AGOA”), was renewed in 2015 to run until 2025 ensuring continued access to US markets of certain export goods from Sub-Saharan Africa, but it was merely an extension of an enactment signed by President Bill Clinton in 2000. Indeed, as Barack Obama leaves the stage, Sub-Saharan economies face difficult times as a result of low commodity prices and muted global demand. The International Monetary Fund reported that economic growth in Sub- Saharan Africa in 2016 is set to be at the lowest level in more than 20 years (IMF, 2016).
If there is a message in all of this, it is that there is no reason for investors who already have a commitment to Sub-Saharan Africa to reconsider their position. However, conversely, it is also true that there is no immediate compelling reason to revisit the region as an investment destination either as a result of Trump’s ascendancy. While the region faces difficult economic times, so does the rest of the global economy. Focus Economics forecasts that the region’s real GDP growth rate will be at 2.9% in 2017 growing to 3.9% in 2018 (Focus Economics, 2016) compared to the global growth rate expected to be at 3.5% in 2017 (Goldman Sachs, 2016). The aggregate GDP masks the dichotomy that exists between commodity based economies and countries in Sub-Saharan Africa that have a more diverse base. Nigeria ended 2016 slipping into a recession while South Africa, the other large contributor to the regional GDP, faced almost no growth. In contrast, Kenya is likely to have seen a close to 6% GDP growth rate in 2016. The current view is that the worst of the bottom of the commodity cycle is over. Bloomberg reports that raw materials will probably see a broad-based recovery in 2017 after an expected strong performance in the final quarter of 2016 on improving demand (Bloomberg, 2016). As such, in addition to the traditional sectors of corporate activity within Sub-Saharan Africa associated with the broadening and deepening economies (consumer and retail, health, construction, energy and infrastructure sectors), expect to see more positioning and consolidation of commodities and allied industries sector participants in anticipation of the recovery of prices and demand.