In this interview, CJ Giddy, International CEO, Absa Securities UK Limited, a part of the Absa Group, one of Africa’s largest financial services groups, talks to Eleanor Hill, Editor, TMI, about the growth of the African economy, its position in the global marketplace and the opportunities that this vast and diversified continent offers to investors.
Eleanor Hill (EH) The IMF has warned that a trade war could shave 0.5% off global growth by 2020. What might the short- and longer-term impact of Trump’s trade war be on African markets, especially on currencies and commodities?
CJ Giddy (CJG): It’s actually difficult to answer for Africa as a single entity, given the important differences that exist amongst the 54 countries that make up our diverse continent. To provide an overview, however, Africa generally benefits from a world that is: growing quickly; where commodity prices are well supported; where policy certainty helps encourage long-term direct investment flows; and where financing conditions are relatively benign. In our view, a global trade war will damage the first three in that list and contribute, along with inevitable monetary policy normalisation in the major global economies, to a less helpful environment on the fourth of the list.
Lower global growth will likely coincide with generally weaker commodity prices, whilst an environment of generally larger policy uncertainty, and where long-term financial flows are often more circumspect, is expected to weigh on many African currencies. That said, the damage to Africa is likely to be collateral rather than the direct result of targeted trade policy. And since the majority of countries in Africa currently produce few of the intermediate and final goods that are frequently the target in global trade wars, Africa’s trade patterns are unlikely to change drastically. So, all in all, it’s an environment that is more challenging, but not yet one that would make us fear a derailment of the underlying African economic story.
EH: What about Brexit? Is that necessarily a negative for African markets? Are there new opportunities on the horizon? What could new UK/Africa trade deals and new investors mean for Africa’s growth?
CJG: The UK is a key source of foreign direct investment (FDI) and a critical trade partner for Africa, so the type of Brexit achieved will be important for Africa. Prime Minister May’s recent trip to the continent, where she visited the three economic powerhouses of Sub-Saharan Africa (Nigeria, South Africa and Kenya), was accompanied by a message that, post-Brexit, the UK will seek to deepen trade and investment ties with the continent.