Will Africa follow the Asian developmental model? 29 Headline th August 2017 Verdana Bold Dr Martyn Davies Managing Director, Emerging Markets & Africa Deloitte
Inequality is the burning issue of our time When Adam Smith published the Wealth of Nations in 1776, the richest country in the world was 4 times richer than the poorest country Prior to the Industrial Revolution, inequality was prevalent within countries. After its consolidation, inequality is now primarily between nations In 2016, the USA was 191x richer per capita than Malawi! Inequality is a productivity problem Countries with the lowest GDP per capita 2017. For information, contact Deloitte Touche Tohmatsu Limited 2
The Industrial Revolution It created: A larger accessible market Larger political entities A larger set of public goods: education, health, pensions, unemployment insurance, infrastructure 2017. For information, contact Deloitte Touche Tohmatsu Limited 3
And caused incredibly rapid divergence in incomes 2017. For information, contact Deloitte Touche Tohmatsu Limited 4
Is Africa the Next Asia? 2017. For information, contact Deloitte Touche Tohmatsu Limited 5
The new development dynamics of Africa Asia s agile & small states lead the way toward economic progression & embedded development Africa s largest countries have (until now) attracted a disproportionate share of investment interest it is wrong to assume that the biggest will succeed With development must come industrialisation and its unintended political consequences Lack of inclusion wealth is unable to trickle down into broader society from narrow extractive industries The enhancement of people s lives in the developing world s is often less dependent upon the state but rather their ability to plug into supply chains 2017. For information, contact Deloitte Touche Tohmatsu Limited 6
The myth of convergence Output per person in the Emerging World almost doubled between 2000 and 2010, with the average annual rate of growth over that decade being 6.9%; 3.7% higher than the rate in rich countries Despite the higher growth, base effects meant that the gap between developed and developing worlds widened GDP/capita (PPP, international $) Source: IMF/WEO April Update, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 7
The Emerging World now needs to Work to Grow 2017. For information, contact Deloitte Touche Tohmatsu Limited 8
What was the Golden Growth Decade? In 2007, all but 3 of the 183 countries monitored by the IMF grew (except Fiji, Zimbabwe and Congo); and 114 of them by more than 5% Only 50 countries had managed a growth rate of more than 5% in the previous 2 decades Private capital flow to developing countries Growth rate of private capital flow to developing countries In 1980 only 16 countries had inflation of less than 5%; by 2007, 103 countries had inflation of less than 5% Source: IMF 2017. For information, contact Deloitte Touche Tohmatsu Limited 9
The Decelerating World 1/3 of previous growth rate 1/5 of previous growth rate 2/3 of previous growth rate Source: IMF 2017. For information, contact Deloitte Touche Tohmatsu Limited 10
The future is divergence Since 2008, the average GDP per head in the EM world (measured in PPP) grew just 3.1% faster than average GDP per head in advanced economies over the same period In the years after the global financial crisis, the situation has worsened: growth rate gap in 2010 was 3.5%; only 1.5% in 2016 Growing at the 2010 growth gap rate, it would take 42 years for EM to reach GDP/capita levels that advanced economies have now Growing at the 2016 growth gap rate, it would take 95 years to catch up to where advanced economies are now! The great expectations of the previous decade are likely to be dashed. This will be the dominant feature of modern economic history GDP/capita growth (% change) Source: IMF/WEO April Update, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 11
An unsustainable sector remains the priority economic model 2017. For information, contact Deloitte Touche Tohmatsu Limited 12
Africa s heavy commodity dependency An overreliance on at times a single commodity and lack of manufacturing activity has seen African countries vastly affected by the commodity price downswing. Commodity exports as share of merchandise exports (%), 2016 Commodity exports account for >70% of merchandise exports in 48% of African countries Commodity exports account for >80% of merchandise exports in 33% of African countries Source: UNCTAD & Deloitte Analysis, 2017, NB: Commodity exports include all primary products (unprocessed goods) as classified by Lall (2000) 2017. For information, contact Deloitte Touche Tohmatsu Limited 13
Commodity cycle & implications for commodity-driven economies World War I World War II Rise of China The China-driven commodity super-cycle was perhaps the last hurrah 2017. For information, contact Deloitte Touche Tohmatsu Limited 14
The Growth Coupling Effect - China-Africa growth trajectories No correlation in growth trends between China and SSA prior to 1996 Correlation from 2000, coinciding with China s Africa Policy Strong African growth on the back of robust resource demand from China Correlation between 2000-15f is 84% Source: EIU, 2016 2017. For information, contact Deloitte Touche Tohmatsu Limited 15
Commodities exporters in EMs struggling to recover Brazil, Russia, Saudi Arabia and South Africa are set to underperform in terms of real GDP growth over the coming five years, relative to EM peers With commodity prices set to remain lower for longer, the respective economies are suffering from weak commodity revenues and a lack of investment, the latter stemming from a dearth of structural economic reforms Five-year annual real GDP growth forecasts (%), 2017-21 Source: BMI, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 16
The most competitive win 2017. For information, contact Deloitte Touche Tohmatsu Limited 17
Comparing regional competitiveness 2016-17 Top 10 Asia-Pacific Top 10 SSA BRICS Country Globa l rank Singapore 2 Japan 8 New Zealand 13 Canada 15 Australia 22 Malaysia 25 Korea 26 China 28 Chile 33 Thailand 34 Country Global rank Mauritius 45 SA 47 Rwanda 52 Botswana 64 Namibia 84 Kenya 96 Côte d'ivoire 99 Gabon 108 Ethiopia 109 Senegal 112 Country Global rank China 28 India 39 Russia 43 SA 47 Brazil 81 Source: WEF, 2017 *out of 138 countries 2017. For information, contact Deloitte Touche Tohmatsu Limited 18
WEF s 12 pillars of competitiveness 2015 Singapore Japan Malaysia South Korea China Mauritius South Africa India Botswana Morocco Kenya Ghana Nigeria Overall Rank* 2 9 24 25 29 45 53 60 74 77 96 114 120 Institutions 3 17 29 74 47 39 41 72 34 53 88 70 129 Infrastructure 2 9 29 11 48 50 66 85 94 57 102 109 135 Macroeconomic environment 18 127 38 9 10 67 95 110 24 90 132 144 46 Health and Primary Education 2 10 33 18 40 43 135 102 115 82 119 122 146 Higher Education and Training 2 21 46 19 70 61 89 91 99 102 103 108 120 Goods Market Efficiency 1 16 10 33 61 25 28 85 92 69 80 70 93 Labour Market efficiency 1 23 25 78 34 55 116 99 47 122 35 91 52 Financial Market Development 2 23 6 81 54 26 3 19 53 69 31 52 66 Technological Readiness 7 19 51 22 85 63 62 98 104 80 89 99 108 Market Size 34 4 26 12 2 112 25 3 101 56 77 70 32 Business Sophistication 17 1 20 24 45 41 35 42 102 92 61 81 75 Innovation 9 5 25 17 32 81 39 41 102 106 46 64 100 Source: WEF *out of 148 countries 2017. For information, contact Deloitte Touche Tohmatsu Limited 19 Out of 140 countries
South Africa s Competitiveness South Africa s top and worst pillars of competitiveness, 2016-17 Source: WEF GCR, 2016-2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 20
African economies are underinvesting in infrastructure compared to Asian economies Source: World Bank, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 21
What then is the secret of economic success? 2017. For information, contact Deloitte Touche Tohmatsu Limited 22
Manufacturing in African economies Manufacturing value added % of GDP, 2016 Sub-Saharan Africa average Source: WDI & Deloitte Analysis, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 23
China s exports 1962 Source: Atlas of Economic Complexity, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 24
China s exports 2015 Source: Atlas of Economic Complexity, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 25
Vietnam s exports 1962 Source: Atlas of Economic Complexity, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 26
Vietnam s exports 2015 Source: Atlas of Economic Complexity, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 27
Nigeria s exports 1962 Source: Atlas of Economic Complexity, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 28
Nigeria s exports 2015 Source: Atlas of Economic Complexity, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 29
Angola s exports 1962 Source: Atlas of Economic Complexity, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 30
Angola s exports 2015 Source: Atlas of Economic Complexity, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 31
Botswana s exports 2000 Source: Atlas of Economic Complexity, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 32
Botswana s exports 2015 Source: Atlas of Economic Complexity, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 33
South Korea s exports 1962 Source: Atlas of Economic Complexity, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 34
South Korea s exports 2015 Source: Atlas of Economic Complexity, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 35
Malaysia s exports 1964 Source: Atlas of Economic Complexity, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 36
Malaysia s exports 2015 Source: Atlas of Economic Complexity, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 37
South Africa s exports 1962 Source: Atlas of Economic Complexity, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 38
South Africa s exports 2015 Source: Atlas of Economic Complexity, 2017 2017. For information, contact Deloitte Touche Tohmatsu Limited 39
Competitiveness of Nations National Prosperity is Created, not Inherited National prosperity is created, not inherited. It does not grow out of a country s natural endowments, its labor pool, its interest rates, or its currency s value [ ] A nation s competitiveness depends on the capacity of its industry to innovate and upgrade. Companies gain advantage against the world s best competitors because of pressure and challenge. They benefit from having strong domestic rivals, aggressive home-based suppliers, and demanding local customers. Ultimately, nations succeed in particular industries because their home environment is the most forward-looking, dynamic, and challenging. Michael Porter (1990) 2017. For information, contact Deloitte Touche Tohmatsu Limited 40
Contact details Dr Martyn Davies Managing Director: Emerging Markets & Africa Deloitte & Touche Deloitte Place, Building 8, The Woodlands, 20 Woodlands Drive, Woodmead, 2052 Direct: +27 (11) 209 8290 Mobile: +27 (83) 459 8880 mdavies@deloitte.com www.deloitte.com 2017. For information, contact Deloitte Touche Tohmatsu Limited 41
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