Tag Archive for: Economic Growth

South Africa’s economy has staged a solid recovery in the third quarter – with every single sector growing after the devastation of the second quarter, when the country was basically shut down in the first phase of lockdown.

Manufacturing, trade and mining saw strong growth, and there was also a notable jump in construction work, after eight straight quarters of contractions, says Momentum economist Sanisha Packirisamy.

The economy grew by 13.5% compared to the previous quarter, after a massive 17.5% contraction in the second quarter. Still, the latest GDP data shows that, after the first three quarters of the year, the South African economy was 7.9% smaller than a year ago.

Some sectors have been absolutely decimated by the lockdown and the pandemic’s impact on demand, given mass retrenchments and continuing uncertainty. The construction sector, for example, shrank by 20% in the first nine months of the year. Manufacturing (-15%) also contracted while trade, catering and accommodation – which includes the ravaged tourism and restaurant industries – shrank by almost 11%.

There are only two sectors that actually grew in the first nine months of this year: government services (+0.8%) and agriculture, which is now 11% bigger than a year ago. The sector boomed this year thanks to bumper summer crops, strong exports and solid prices.

After a lean 2019 due to foot-and-mouth disease and various droughts, good rains have fallen in many parts of the country this year. The country’s 2020/21 winter barley and canola harvests are expected to be the largest on record, while wheat production is predicted to reach a 19-year high, and the maize harvest is expected to be a third bigger than last year.

Exports of various produce have also been strong. For example, South Africa may export almost 10 billion pieces of citrus fruit this year, in what is expected to be one of the best seasons on record. This was thanks to a solid local harvest – but also strong demand, especially in Europe, for vitamin C as the coronavirus caused consumers to become more conscious of protecting their immune systems.

Maize exports increased by 235% to 963,441 tons in the third quarter, compared to the same period last year, reports Paul Makube, Senior Agricultural economist at FNB Agri-Business. “On the back of a bullish weather outlook with the La Niña pattern having taken hold above 90% chance for Southern Africa, agriculture’s outlook for the year ahead is even more positive,” says Makuba. La Niña, a weather pattern that begins in the Pacific Ocean, usually brings more rain to South Africa.

The preliminary intentions to plant report for summer crops indicates a 5% increase in planted area for the 2020/21 season to 4.15 million hectares. “This is likely to increase further in subsequent reports given the high commodity prices and better production conditions.”

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email info@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: [1], [2].

There are no defensive postures here. Undaunted by the potential for pandemic induced collapse in demand for commodities like sugar and cement, Nigerian billionaire Abdul Samad Rabiu sees only possibility – especially in agriculture, especially in Nigeria.

Not only is agribusiness relatively simple in terms of its business model, but it is urgent to save needed foreign exchange and to boost employment, he explains. Rabiu’s major focus is on promoting more production and processing to meet national demand and make more profits for his conglomerate BUA Group. BUA listed its subsidiary BUA Cement in January to raise capital for industrial projects in the glass, steel and oil sectors, citing the rigour and “scrutiny” of the process as a way of “de-risking” Nigerian opportunity for investors domestic and foreign.

“The opportunities are here,” enthuses the group chairman and chief executive during our videoconference, a portrait of South Africa’s former president Nelson Mandela beaming over his shoulder. That has not really been the case for the man on the Lagos Danfo, to twist a phrase – the city buses were restricted due to measures against transmission of COVID-19.

Most Nigerians are still reeling from the economic impact of the pandemic. Traders have ceased operation, farmers have thrown away produce due to the lack of transport, and businesses have mothballed investment projects. Most of BUA Group’s expansion programme remains undisturbed. Chief executive Rabiu unveiled plans for 3 million tonnes per annum (mtpa) in cement capacity and 50MW of power in Adamawa State in July.

However, he put off the announcement of a glass project that was slated for the postponed June France-Africa summit. While COVID-19 disrupted most firms, greater automation in BUA Group’s agribusiness and cement plants allows them to operate at about 40-50% of their normal capacity. “We are lucky for the fact we are even at 50%. Many others have not been able to work at all,” says Rabiu.

The ban on travel between Nigeria’s states was the greater challenge, “and that is lifting now”. He argues that “the impact [of the coronavirus] is going to be with us for quite some time” and that “entire industry business models are going to have to change.”

Better than 2019

Learning from operating his family business as a young man, Rabiu has built up his empire slowly but surely. BUA Group has moved from a trading company importing commodities to a manufacturing powerhouse in agribusiness and construction materials. From edible oils, through sugar and cement projects, the group also operates a shipping terminal in the oil town of Port Harcourt and owns a real-estate portfolio.

Cement is the industrial star. BUA Cement had a solid first quarter in 2020, banking nearly $60m in profit. This means, according to Rabiu, that it can absorb the slowdown from April to June, and have year-end results that may be “better than 2019”. That is not something many other Nigerian companies are predicting. It is bullish given the record year the company had in 2019; a 47.5% increase in turnover, with profit jumping nearly 70%.

He attributes the leap to the launch of a second line at the Obu plant in March 2019, adding 3mtpa to BUA’s output, and the first full year of the Kalambaina plant’s second line operations. The cement expansion does not stop; while BUA Cement currently has capacity for 8mtpa, Rabiu is targeting 14mtpa over the next few years.

Analysts do not share Rabiu’s optimism about the sector in the short term. “We expect the deterioration in the macroeconomic conditions – caused by the outbreak of COVID-19, which triggered a sharp decline in oil prices – to constrain activities in the construction industry as fiscal spending on capital projects weakens,” wrote Nigeria’s CSL Stockbrokers.

The scars will remain for some time for the Nigerian economy at large, Rabiu says, with the damage hitting the poorest first. “The price of goods has gone up, especially food items,” he says, partly as a result of the devaluation of the naira but also because the virus has hurt port logistics, making the clearance of imports difficult. That could be seen as an opportunity to intensify Nigeria’s great push to support food production, something that the government of President Muhammadu Buhari has supported for rice in particular.

As part of Nigeria’s CACOVID (Coalition Against Covid-19), an organisation of private-sector operators pooling funds to help relief efforts, BUA has put money into feeding programmes in Lagos and other cities, to cushion the blow of the pandemic. Fundamentally, Rabiu is unhappy about the high level of food imports. “It should not be happening at all, not only here in Nigeria, but generally in Africa. We have 60% of the world’s arable land. We have the people [to farm]. We have the climate. We have everything it takes.”

He is keen for that opportunity to go beyond food crops to cash crops, and again focus on keeping value in Africa. “The US, Germany, Switzerland and Belgium produce 75% of the entire chocolate production worldwide. And if we look at the cocoa industry worldwide, what are we talking about, $150bn-$160bn? And Africa gets maybe $10bn-$15bn of that?”

Sugar for resilience

He expects agriculture to provide the resilience that Nigeria needs in the post-COVID-19 era. Next year, for example, will see the ramping up or opening of operations at three major sugar plantations, including BUA’s own in Kwara State, as well as projects for Dangote Sugar and Golden Sugar.

BUA is Nigeria’s second-largest sugar producer after Dangote Sugar. “With that plantation, we will be able to produce 150,000tn of white sugar with millions of litres of ethanol, employing over 10,000 people in direct jobs,” says Rabiu.

He was inspired by a visit to Uganda’s Kakira sugar estate, run by the Madhvani family: “It was the most impressive sugar plantation I had ever seen.” And Mayur Madhvani told Rabiu that while he could get yields of 9tn per hectare in Uganda, the soils and potential in Nigeria were far greater.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email info@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: [1], [2].

This article war first published by The Africa Report.

Coenraad Vrolijk, The CEO of Allianz Africa talks about the need for targeted regulations in Africa’s insurance markets and the markets the company wants to invest in.

Ethiopia is among the most attractive untapped insurance markets and the opening of the sector to foreign investment is just a matter of time, Allianz Africa CEO Coenraad Vrolijk tells The Africa Report. Foreign direct investment in insurance is not allowed in Ethiopia.

But there are very few countries that persist in excluding foreign capital in the long term, he says. Vrolijk hopes to oversee Allianz’s entry into Ethiopia within the next three years: “It’s a question of when.”

Signs of market opening remain at this point “discussions”, but they are “positive discussions which are picking up in frequency”.

African insurance has shown average annual organic growth of 10% in dollar terms since the mid-1990s, and Vrolijk sees no sign of that slowing. Markets with substantial growth potential include Morocco, Nigeria, Kenya and Ghana, he says. Allianz has a wide range of possible new African markets.

About half of the continent’s 54 countries are “interesting”, yet Allianz is present in only 13. Vrolijk says he is “slightly more optimistic” for the company’s prospects in 2020 than he was at the start of 2019. This is due to internal organisational improvements, such as IT system upgrades.

The growth story in Africa faces a possible hurdle in the form of claims ratios, which push up costs for insurers when they increase. François Jurd de Girancourt, head of the McKinsey Africa financial institutions practice, says they could derail the industry’s growth.

Claims-to-premiums ratios

In auto insurance, the largest line of business in many countries, have deteriorated in the past three years in maturer markets such as South Africa and Morocco, he says: “This is not just a short-term effect, but a trend which requires insurers to revisit their business model.”

Capturing and using data, combating fraud, reviewing claims processes and reinventing the relationship with agents are all areas insurers must look with regard to these markets, says De Girancourt.

Insurance yo-yo

Vrolijk “strongly disagrees” with McKinsey’s worries. Africa, he says, has “the lowest claims ratios of any continent in the world and will remain so for the next five years”. Kenyan experience supports his argument.

According to Deloitte’s Insurance Outlook for 2019-2020 in East Africa, expense and claims ratios in Kenya, one of Africa’s more mature insurance markets, showed a slight upward trend from 2012 to 2017, before declining to jut over 40% in 2018. As markets mature, Vrolijk says, claims ratios tend to go up.

When that happens, he argues, premiums will rise and claims will fall again. He says that claims ratios that are too low show that little is being given back to the customer. Manaers reporting claims ratios of less than 40% have to provide him with explanations.

Vrolijk sits on the board of the Africa Reinsurance Corporation, which gives him access to insurance regulators who are also board members. He is encouraged by the conversations he has had, which leave him with no reason to slow down investment. There is a continent-­wide trend towards improving capital and solvency rules, he says. “African regulators are making the journey.”

Large-risk and industrial insurance in Africa are problems, as very little experience has been accumulated on quantifying losses in those fields, he says. Some African insurers also fail to reinsure their risks, he says. “It keeps regulators awake at night.”

Nigerian penetration has been held back by a lack of insurance agents. There are fewer agents in the whole of Nigeria than at the largest Kenyan insurer, Vrolijk says. Likewise, bancassurance in Nigeria has so far been “ineffective” and remains a tiny market. “There have to be people selling insurance.” Still, the Nigerian insurance market is “professionalising very quickly” after years of being “extremely fragmented.”

Compulsory insurance offers one way forward, he says. The first job is to get governments comfortable with why an insurance industry is needed in their country. The role of insurers in developing a pool of collective savings means that they can be the biggest buyers of bonds issued by African governments, he says. “When governments issue bonds, we jump on them.”

Third-party insurance for cars and accidents at work should be compulsory too, he says. Whereas third-party liability in Morocco is unlimited, such cover for Nigerian road accidents results in meaninglessly small payouts, he says.

Need for a strong judiciary

Kenya’s much higher levels of insurance penetration, by contrast, have been achieved because of “relatively liberal” regulatory rules that have allowed insurance companies to start innovating, says Vrolijk.

The main obstacle to compulsory insurance, he says, is that it takes time to develop and is complicated to enforce. A crucial ingredient, he says, is an “effective, fast and predictable” judiciary system, essential to adjudicating third-party claims. The strength and independence of a judiciary and the extent of insurance penetration have a “very strong” correlation, he adds.

African free trade, Vrolijk says, is “not yet really happening on the ground.” It remains impossible for Allianz to draw on shared supplier services – such as in the back office – across jurisdictions because “the taxman won’t accept it”.

This hurts smaller African countries in particular, as its means it is not viable to run operations there. Allianz has pulled out of some smaller markets such as Mali, Central African Republic (CAR), Togo and Burkina Faso.

These, he says, are too small to justify meeting regulatory requirements on capital. Even 100% market dominance in CAR, he says, would not justify the funding injection demanded. “Capital requirements need to be scaled to the size of the market,” he says. “One size fits all doesn’t make sense.”

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email info@relocationafrica.com, or call us on +27 21 763 4240.
Sources: [1], [2]. Image sources: [1], Rohan Reddy [2].