South Africa

South Africa became part of the BRICS group back in twenty ten and its clear to see why. From two thousand and two through to two thousand and eight, the country experienced annual growth averaging a tad under five percent per year and at times during that period it had teased the eight percent level giving a glimpse of the possibilities ahead. With vast natural resources such as gold, diamonds and platinum, excellent infrastructure and easy access to finance for business it had all the right ingredients in place for this trend to continue. The global recession hit hard however and, after a sharp contraction in the economy of six percent, it never really found its feet again. An increasingly corrupt government and high crime rates haven’t helped win foreign investment back into the region and South Africa’s currency, the rand, has lost fifty percent of its value against the dollar in the last five years. Nearly a third of that loss has been in the past year alone. Just like it famous cured meat called Biltong – that’s got to be tough to swallow. Today the economy is a shadow of its former self. Roughly a quarter of the population is unemployed, commodity prices have slumped and major exports such as iron ore and platinum are tumbling. The country is also in the grip of an energy crisis. State-owned Eskom, the utility company which generates around ninety five percent of the country’s energy is suffering from years of underinvestment. The result is rolling blackouts across the country to manage demand and this has had a major impact in the South Africa’s economic recovery. Mounting debt and a poor economic outlook have led to the major credit ratings agencies suggesting a downgrade of their credit status to junk in their next review. A move which will put the final nail in the coffin of a possible South African recovery and leave their Rugby team as the only thing worth keeping an eye on for the foreseeable future. With South Africa’s emerging market crown now sitting in pieces around President Zuma’s feet, you would think the obvious choice as its successor would be Nigeria. Its large economy has performed well in recent years, but the drop in oil prices has hit the country hard. Currency has weakened, inflation has moved into double digit figures and the country has fallen into recession. Egypt is viewed as part Africa, part Middle East, but it’s in no state to pick up the baton either. Tourism has taken a heavy hit following flight bans to Sharm el-Sheikh after the downing of a Russian passenger jet in 2015. The country has just received a twelve billion dollar bailout from the IMF in return for a range of strict austerity measures to try and get it back on its feet. So step forward Kenya. An economic minnow when it comes to GDP but one that has shown amazing resilience and stability for well over a decade. It’s averaged growth of over five point four percent since two thousand and four and managed to maintain a positive outlook even when the rest of the world was reeling from the two thousand and eight recession. Agriculture, Forestry and Fishing account for roughly one quarter of the country’s economy. Manufacturing and tourism are also strong industry sectors, but there’s no single industry which Kenya is reliant upon to drive its economy. It’s this diversity along with extensive investment in infrastructure over the past few years which has seen Kenya become the economy on the move in the African continent. Unlike its oil producing neighbours South Africa, Egypt and Nigeria who have all been hit hard by the slump prices, Kenya imports almost all of its energy needs and has benefited hugely from shrinking oil prices. That’s allowed it to divert some of its funds into a fledgling renewables sector and with a recent Deloitte report projecting an above six percent growth pattern for the next five years at least, you’d have to uncover some pretty compelling evidence to suggest that Kenya won’t continue its growth surge for many more years after that. What we’ve learnt above all else though from this video series, is that emerging economies are unpredictable. A country that seems like it might become the next economic superpower one minute, can be down on its knees scrabbling for pennies in the dirt the next. The rapidly changing social, political and economic nature of emerging economies are what make them so exciting to investors the world over. But it’s those same rapidly changing processes that can also become their downfall. There’s no doubt that emerging markets provide some of the best opportunities in the world for the savvy investor to trade, but with great opportunity comes great risk. So if you’re thinking of dipping your toe in the waters of the emerging markets without some detailed research and a strong risk management strategy, be very careful out there.

• published: 12 Jan 2017
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