What Are Lion Economies?

What Are the Lion Economies?

Lion economies are a nickname for Africa’s rising economies, which had a collective Gross Home Product (GDP) of roughly $1 trillion in 2021. These economies typically embody:

• Ethiopia
• Ghana
• Kenya
• Mozambique
• Nigeria
• South Africa

Key sectors contributing to Africa’s collective GDP progress embody pure assets, retail, agriculture, finance, transportation, and telecommunications. Enhancements in political stability and financial reforms have aided progress however globalization, beforehand a boon to the continent, has just lately had a unfavorable affect.

Understanding Lion Economies

The Worldwide Financial Fund (IMF) estimates that the lion economies of sub-Saharan Africa will develop by 3.8% in 2022 and 4% in 2023, higher than they fared in earlier many years however nonetheless nicely beneath the anticipated progress charges of rising market economies total.

Among the many international locations with the very best anticipated progress charges for the subsequent two years are Ethiopia, Ghana, Tanzania, Uganda, and Kenya, based on the IMF—although totally different traders and suppose tanks listing totally different international locations as “lions.”

Nigeria, Africa’s largest economic system with a GDP of $376 billion, grew only one.5% in 2021 after struggling a recession in 2016 and the lingering results of COVID19 within the years following. It’s projected to develop at about 2.9% a yr over the subsequent two years, nicely off forecasts of seven% annual progress by 2030 by McKinsey & Co. simply 5 years in the past.

Using the moniker “lion economies” is analogous to the “tiger economies” used to explain a number of booming economies in Southeast Asia. The Asian tiger economies usually embody Singapore, Hong Kong, South Korea, and Taiwan.

Headwinds for Lion Economies

Nigeria, the biggest oil producer on the African continent, is probably the most obvious instance of how the lion economies are struggling to keep away from monetary crises. As soon as seen as one of many extra dynamic areas of financial progress in creating markets, which embody each rising and frontier economies, sub-Saharan Africa has been harm just lately by falling commodity costs, a slowing Chinese language economic system, and the rising value of exterior debt.

Commodity exports are the lifeblood of African international locations and have but to recuperate from the oil value shocks of 2015 and 2016 that signaled the tip of the commodity super-cycle. The commodity value hunch has induced African currencies to weaken, inflation to rise, fairness markets to say no and bond spreads to widen, elevating the price of borrowing and lowering some international locations’ entry to the sovereign bond market. A slowing Chinese language economic system has induced a lot of this commodity weak spot as its demand for major items equivalent to industrial metals mined in Africa has slackened.

Investing within the Lions

Given the financial malaise overhanging lots of the lion economies, Africa has moved from a progress funding to a turnaround story.

Traders in search of publicity to the lion economies have only one continent-wide ETF to think about, the GDP-weighted Market Vectors Africa ETF (AFK) invests in South Africa (29%), Morocco (12%), Kenya (8%), Nigeria (8%) and Egypt (8%), with the rest in developed and rising market firms working in Africa. The most important African ETF is the iShares MSCI South Africa ETF (EZA), whereas smaller ETFs goal Nigeria (NGE) and Egypt (EGPT).

China in Africa

Whereas a lot of the West had ignored Africa as an vital financial heart, China has dedicated to establishing a robust foothold there. For the reason that Nineteen Seventies and accelerating by the 2000s, China has been investing in Africa, typically by direct funding in infrastructure and vitality initiatives. Certainly, over the previous 20 years, the Chinese language have constructed greater than 6,250 miles of roads and three,700 miles of railroads throughout the continent. That’s roughly 20% of all of Africa’s highways and 10% of its railways.

For China, they profit from establishing commerce relations to import uncooked supplies, and in addition assist to develop a bigger client class to buy Chinese language-made items. On the similar time, African economies turn into depending on Chinese language imports and financing whereas owing a rising quantity of debt to China. China accounted for almost one-fifth of Africa’s total worldwide commerce in 2020. China was additionally the supply of $153 billion in cumulative loans to African international locations between 2000 and 2019.