Focus On 19 May 2016

Focus On - The African economic miracle: this is (not) the end

In recent months, the news has been depicting an African continent in difficulty. Economic growth has been the lowest in recent years, and some old "bogeymen" like rising debt have re-emerged. Is the parable of the African economic miracle at risk?

Executive summary

In recent months, the news has been depicting an African continent in difficulty. Economic growth has been the lowest in recent years, and some old "bogeymen" like rising debt have re-emerged. Is the parable of the African economic miracle at risk?

 

We don’t think so. Never before have there been such differences among the 49 countries of the continent. And the difference is often what we might call the 3C Factor, to represent three variables — i.e. CommoditiesChina and foreign Capital — that affect the economic present and future of the African continent.

 

It is no coincidence that the greatest difficulties are to be found in those countries where the 3C Factor is greatest, e.g. South Africa, Nigeria, Angola and Zambia; conversely, the countries less exposed to the 3C Factor continue to offer interesting opportunities, such as those in East Africa (Kenya, Tanzania and Rwanda) and West Africa (Senegal and Ivory Coast). The dynamics of Italian exports to the region follow this same dual pattern.

 

The recent decline in the African economic situation once again underscores that venturing abroad requires a rational strategy, even when things seem to be going well. So three useful suggestions: retain advisory services to judge the strategic strength of a project and assess the impact of the logistical-operational difficulties in the area; accompany the commercial proposal with a financial proposal that lightens the burden of repayment; and secure instruments to mitigate or cover the risk of payment default, due to the commercial insolvency of the counterparty or possible local currency restrictions.

 

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