The Rise of the New World’s Frontier and Emerging Markets: Implications for the Global EconomyPresentation to the EDP CEOs ForumCape Town South Africa21 November 2011 CONFIDENTIALITY and DISCLAIMER: This document and its contents are strictly private and confidential, privileged and for the information of the intended recipient only. Frontier Advisory makes no representations or warranties in respect of the content of this document, and will not be liable for any loss or damage of any nature that may arise from this document, the content thereof or your reliance thereon. Should you have received this document in error please contact the sender immediately and destroy this document.
Contents The Global Economy** as we shouldknow it
The Economist: The World in 2011 “One of the landmarks of change in 2011 will be China overtaking America as the biggest manufacturer. But China too could find itself being overtaken by India in economic growth, in what would be a sign of things to come.” Michael Pilkington Editor, The Economist
Global Current Account Imbalances Many western economies, particularly the US, ran significant current account deficits that were financed by current account surpluses in emerging Asian economic powers, particularly China. As the world’s emerging economies transformed themselves from debtor to creditor economies, geo-economic power began to shift.
Libya – Impact on the Rest of the WorldConsequences for global oil supplyIt is reckoned that Libya has the largest proven oil reserves in Africa(± 44 billion barrels) – theoretically provide enough oil for another76 years of production 26/02/2011Main oil-producing companies in Libya: BUT
Libya – Impact on the Rest of the World Oil output in Libya has been cut by 50% Oil prices have risen and are set to rise even further If oil prices rise to US$ 200 a barrel, it could lead to a double-dip recession worldwide 26/02/2011 2 March 2011 US$ 115.96
The Young and the Restless?• There are currently 5 65 320 Facebookusers within Egypt• 50% of these users are between the agesof 18-24 • There are currently 305 420 Facebook users within Libya • 70% of the users are between the ages of 18-34
Saving for Luxury Things & Times Source: IMF - World Bank Data
Drug Dealer and Addict Syndrome Over- indebted US Unsustainable consumers go on an Chinese export unsustainable binge drive, built on cheap currency ↓ interest rates $s earned from ↑ housing prices export drive went back into USA Encourages US to loan more to buy more Chinese goods “After 1989 capitalism saved China. And after 2009 China saved capitalism” - David Miliband, Britain’s foreign secretary
Implications of Emerging Markets on Established MNCs• Know your competitors• Take a hard look ahead, anticipate the challengers• Design a strategy for the new outlook – create your own challenger• Evaluate your operations and nurture your customer ties• Find ways to ride the wave of globalisation instead of fighting it – look for new opportunities
The Economist’s Top Growers 2001-2010 Source: Economist and IMF forecast
The Economist’s Top Growers 2011-2015 Source: Economist and IMF forecast
How is Africa doing? Only 8 African Countries had a 2010 GDP for African Countries (in billion US$)GDP in 2010 that 1000 was higher than BHP Billiton South Africa Egypt NigeriaGross Domestic Product, Current Prices (In billion US$) Algeria 100 Morocco Angola Libya Sudan BHP Billiton, 52.8 Tunisia Cameroon Côte dIvoire Ethiopia Kenya Equatorial Guinea Tanzania Ghana Uganda DRC Zambia Burkina Faso Gabon Mauritius Namibia Senegal 10 Republic of Congo Mali Mozambique Madagascar Benin Chad Rwanda Zimbabwe Guinea Malawi Niger Mauritania Swaziland Central African Republic Togo Eritrea Cape Verde Lesotho Sierra Leone Burundi 1 Djibouti Guinea-Bissau Seychelles Liberia The Gambia Comoros São Tomé and Príncipe 0.1Source: IMF Data, Frontier Advisory
Creating Frontier Markets in SSAGrowth underwritten by rising commodity prices; and from low baseImproved macro-economic frameworkCapital inflows from BRIC economiesSA Inc pushing North, ME sovereign wealth pushing SouthRollout of sizeable infrastructure developmentRemittances as a capital providerSlowly improving intra-regional trade networksDeepening capital markets – growing equity cultureEmergence of “African multinationals”Urbanisation and increasing African consumer spend
Africa TodayUS$1.6tr – Africa’s collective GDP in 2008US$860bn – Africa’s combined consumer spending in 2008316m new mobile phone subscribers signed up since 200060% of worlds’ total amount of uncultivated, arable land52 Africa cities with more than 1m people each20 African companies with revenues of at least US$3bnBut large and varying topography, languages, culturesStill limited intra-Africa trade and investment
Africa – the untapped market of the futureUS$2.6tr – Africa’s collective GDP in 2020US$1.4tr – Africa’s combined consumer spending in 20201.1bn African of working age in 2040128m African households with discretionary income in 202050% of Africans will be living in cities by 2030, andurbanisation offers further productivity and incomeopportunities2bn African consumers by 2050Continued strong growth trends given changes in globaleconomy and internal changes in continent’s societies andeconomies
Contributors to Sub-Saharan African GrowthGrowth underwritten by rising commodity pricesImproved macro-economic frameworkCapital inflows from BRIC economiesSA Inc pushing up North, ME sovereign wealth pushing SouthRollout of massive infrastructure developmentRemittances as a capital providerSlowly improving intra-regional trade networksDeepening capital markets – growing equity cultureEmergence of “African multinationals”Increasing African consumer spend
Concluding Thoughts• From “De-coupling” to “New Coupling”• Emerging markets are the new drivers of growth and determinants ofthe global growth cycle• Over the medium term, African economies that align their developmentneeds to the EM reality will succeed, the rest will falter• States are becoming more interventionist – “The Developmental State”• Africa will be further marginalised from traditional economies….• But will gravitate toward the BRICs• We must differentiate between the growth story and true development• Geo-strategic economic maps are being redrawn
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