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UPDATE- AFRICA- JONATHAN HORN - END DEC 08
Comments on Africa - Jonathan Horn, Africa Region Executive
Expectations 2009
- Africa's trade growth is anticipated to slow at least during the first half of 2009. While the impact of the world economic situation has been more quickly and directly felt in South Africa in the last third of 2008, the impacts are now filtering through into most of the other African countries and trade volumes are reflecting this.
- China's (and indeed the rest of the emerging Asian economies) growth rate in 2009 will continue to be a key driver of trade growth for Safmarine in Africa. Most of China's import commodity consumption has been for export production for international markets. With global demand having dropped off - and likely to be depressed for most of 2009 - much of China's growth and resource consumption will be directed at internal growth. Growth rates are closely linked with consumption of commodities which remain a large component of trade from Africa. While there are quite a wide range of forecasts of economic growth rates in China for 2009, the lowest seem to be in the vicinity of 5%. While this is some way off the growths enjoyed over the past few years, it is still significant for an economy of this size. This level of growth is still anticipated to drive ongoing demand for commodities (once current stockpiles have been reduced), albeit at lower levels than experienced in 2008.
- Even though interest rates were reduced in South Africa at the end of 2008, consumers on the whole are likely to remain cautious from a consumption perspective and concerned about their personal economies. Job security is a key concern for many and this is likely to cause conservatism in spending patterns well into 2009. As with rising interest rates, it will take several months for the impact of any downward change to be directly felt in the economy. The reduction of 50 basis points in interest rates alone will not be sufficient to boost domestic consumption significantly in the short term.
- While the economies of Angola and Nigeria and other oil-producing countries in Africa have been negatively affected by the drop in the oil price (from a high of in excess of USD140 per barrel to around USD 40 per barrel), these economies continue to grow at a significant rate.
Trade growth:
- Safmarine has recorded double digit growth for both imports into and exports from Africa year to date to November 2008. However, November reflected a significant slowdown over previous months, which is indicative of the impact of the global slowdown in trade now filtering through into many of the African economies. Much of this slowdown is due to lower exports of commodities.
- The greatest decline being seen into and out of South Africa. Since October, the overall export market from South Africa has shown a very rapid reduction from positive double digit growth in September to two consecutive months of decline.
- The overall South African import market has shown several consecutive months of decline, this though largely as a consequence of the local credit crunch and consequences of several interest rate hikes over the past 1 - 2 years the impacts of which are now being felt. This is naturally exacerbated by what is unfolding globally.
- The consistent message when talking to customers and suppliers regarding the global economic situation is that nobody seems to have a clear view as to how long this will last or how severe it will get. We can only really speculate as to the timing of revival and in the interim, focus on the elements of business we can control and plan for a range of scenarios across those which we do not control. Expectations certainly are for this economic situation to continue at least well into the second half of 2009.
- South Africa currently accounts for some 40% of Safmarine's volumes in Africa.
- Historically South African exports have tended to increase with the weakening of the Rand (after a short period where exporters gear up production to cater for demand). Although the Rand has weakened from approximately R8 to the USD to R10 to the USD in the last quarter of 2008, export volumes have remained down as a result of the depressed global economy. "Even though the drop in the Rand has made South Africa's exports more attractive, the global demand is just not there right now to fuel significant export growth at this time."
- It is anticipated that once global markets return to stability, trade growth for Africa will continue to surpass global averages as has been the pattern in recent years.
- Between 2002 and 2007, Africa recorded strong economic growth - on average in excess of 5% per annum, a figure that exceeds general global growth percentages.
Commodities:
- There has been a significant decline in the export of mineral, metal and agricultural based commodities towards the end of 2008, largely as a result of drop off in demand - particularly from East and South Asian markets - the long-term supply and demand picture is however not expected to drop off to any meaningful extent.
- Although growth rates in Africa's markets are expected to cool in line with global trends over the balance of 2008 and 2009, demand for commodities in particular is expected to continue, albeit at lower levels in the short term.
- Key demand/emerging countries such as China are experiencing growth slowdowns; an important point though is that they are still predicted to grow. China's consumption of commodities is anticipated to remain significant as their massive economy will continue to grow at rates anticipated by many economists to be at a minimum of 5%. "China will continue to consume commodities, albeit at a slower rate than seen in 2008."
- The long term supply and demand picture is expected to recover as the world economy strengthens once again - the timing of this is however very difficult to predict.
- The lack of diversification of many of the commodity-based African economies remains a concern, from a longer-term perspective, as it increases the continent's vulnerability to commodity price fluctuations.
- For many countries, commodities drive where trade and investment happens. Adding value to these in Africa and exporting this value rather than having this occur in other emerging economies will help balance of payments, create employment and increase skills levels, drive growth and broaden the platform from which growth can occur. This is why it is so important that these countries beneficiate their commodities into products further along the value chain - and the world importantly sees Africa as more than just a source of commodities.
2010:
- Fifa World Cup 2010 is providing a certain amount of optimism with regard to the impact of the global financial crisis on South Africa.
- Significant investments in infrastructure are being made, which is adding impetus to the South African economy and to some extent buffering the local economy.
- South Africa is likely to see a pick up in trade towards the end of 2009 on items directly associated with the World Cup event itself. "If we didn't have 2010 World Cup to look forward to, our economy might have been more negatively affected by recent global events."
Investment:
- Africa remains an attractive option for investors, particularly those from Asia who appear to be motivated by the need to secure resources and provide a beachhead in terms of accessing a market which has until now been largely untapped.
- Investors in Africa need to take a long-term view and should be prepared to invest in more than Africa's mineral and agricultural resources; they should have an interest in developing Africa's vast human resources by creating meaningful employment, education and skills development, as well as beneficiation or value add to vast natural resources rather than having the beneficiation done in other countries.
- Africa needs investment from companies who are prepared to commit for the long run and add value both for their shareholders and the African communities within which they operate.
- Africa needs to be competitive with other emerging economies from a risk/return perspective; an attractive investment climate will encourage industries to develop manufacturing, production and potentially service facilities in Africa (vs other emerging economies who are also aggressively competing for investment). It will also help reduce costs, increase competition and improve supply chain-related infrastructure.
- Investment in Africa coupled with the employment growth and earning capacity has increased domestic demand for a variety of goods such as motor vehicles and associated industries, food and beverages, electronics and white goods
- Investment in West Africa's oil and gas sector has resulted in overall economic upliftment of the region. This has had a direct knock-on effect on consumer spending and the demand for goods and services. Supplementary investments in infrastructure - like road, rail, electricity, housing and telecoms - which is aligned to both oil and gas and commodity investments, have also supported Africa's overall economic growth.
- Companies investing in Africa need to see the continent as more than a vital source of commodities; it is also an important long-term market for their products.
- Investment in infrastructure - particularly road, rail, ports and telecoms - is making a positive impact in the region.
Challenges:
- It remains one of Africa's biggest challenges to diversify its economies to house greater manufacturing and service industry capability.
- The import dominance of Africa, combined with the high demand for 6 metre containers for export and 12 metre containers for import, presents shipping lines such as Safmarine with particular repositioning challenges.
- Shipping companies require - and encourage - the quick turnaround of containers to ensure effective equipment utilization. The cost of repositioning container equipment to where it is needed can be high on those trades which are imbalanced.
- A shortage of adequate, secure warehouse facilities in many developing countries in Africa is placing many companies under significant pressure in terms of destuffing and returning container equipment.
- Development of the supply chain infrastructure is key and investments need to be advanced. An efficient supply chain helps importers and exporters and everyone who wants to invest. "People want a reliable supply chain into and out of a country and the less predictable that is, the higher the costs, largely because businesses are forced to hold increased stock levels across the supply chain."
Safmarine in Africa
- Safmarine is particularly active in the transport of project cargo and the line sees great potential in its MPV (multi-cargo) services into West Africa.
- The bulk of cargo shipped to West Africa on Safmarine's multi-cargo service is destined for infrastructural development (road, railways, etc), production facilities (primarily oil and gas and mining related at this point) and associated services. Much of the cargo is heavy, out-of-gauge, or cannot be containerised and is therefore ideally suited to Safmarine's niche MPV service
- See the Brochure category for more details on Safmarine's container and non-container services to West Africa.
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