Turbulent Waters


South Africa’s central bank said in August that it would consider intervening in the currency market to ensure orderly conditions after the rand slumped 3 percent to an all-time low over concerns about China’s turbulent economy. South Africa and other emerging markets in Africa, such as Egypt, Nigeria and Kenya, have been the worst hit by China’s market volatility, particularly because they are dependent on the export of commodities such as oil and industrial metals. Analysts say China’s instability will affect Africa the most because the continent’s $220 billion annual trade with China will shrink over the coming years. 


African economies are expected to grow 4.5 percent in 2015 and 5 percent in 2016, according to the annual African Economic Outlook report published by the Organization for Economic Cooperation and Development, the African Development Bank and the United Nations Development Program. East Africa, seen growing 5.6 percent this year, is still turbocharging the continent’s expansion, while West African economies are expected to stage an impressive recovery from the Ebola epidemic with 5 percent growth in 2015. Southern Africa, however, once the continent’s economic leader, mainly because of South Africa’s performance, is becoming a drag on overall growth. The Southern African region as a whole is expected to grow 3.1 percent in 2015, the report said, well below the 4.5 percent continental average for the same period, because South Africa will underperform. Forecasts are calling for a 2 percent growth rate for South Africa due to labor disputes and energy shortages that have hampered the mining sector.


Money flowing into Africa from abroad will reach a record $193 billion this year, thanks to foreign investment and remittances from African workers overseas who are expected to send $64.6 billion home in 2015. But local investors are becoming increasingly conservative and foreign ownership of equities may ease, which partly explains why U.S. President Barack Obama in July urged the continent’s leaders to prioritize creating jobs and opportunities for the next generation of young people or risk sacrificing future economic potential to further instability and disorder.


According to the Africa Economic Outlook report, private investment from overseas is expected to grow to $55.2 billion this year, more than 10 percent higher than last year. But that’s still lower than $66.4 billion in 2008, indicating that foreign investment interest in Africa has still not fully recovered from the global financial crisis seven years ago. Foreign direct investment in Africa is expected to reach $73.5 billion this year. As economic growth slows in Nigeria and South Africa, most analysts now predict 2015 would be Africa’s most challenging year this decade. The collapse of oil prices is hurting most resource-based economies such as Nigeria, Algeria and Angola, prompting risk-off, or bearish, trade that could attract bargain hunters in the capital markets. 


Unlike Africa, the Caribbean markets are looking up as a stronger dollar and strong economic growth in the United States means more Americans going for vacation in the islands, boosting the tourism sector. Jamaica saw a 6.3 percent growth in tourists to 1.93 million during the first half of this year. Domestic investment is on the rise in Jamaica and other island nations, analysts said.