October 1, 2007	Monday	Ramazan 18, 1428

South Africa

South Africa is the economic powerhouse of Africa, with a gross domestic product (GDP) four times that of its southern African neighbours and comprising around 25 per cent of the entire continent’s GDP. The country leads the continent in industrial output (40 per cent of total output) and mineral production (45 per cent) and generates most of Africa’s electricity (over 50 per cent). Its major strengths include its physical and economic infrastructure, natural mineral and metal resources, a growing manufacturing sector, and strong growth potential in the tourism, higher value-added manufacturing and service industries.

South African banking regulations rank with the best in the world. The sector has long been rated among the top 10 globally. There are 55 locally controlled banks, 12 foreign-controlled banks and five mutual banks. Some of the world’s leading institutions have announced their intention to enter the local banking sector through mergers and acquisitions. The financial and industrial sectors are concentrated in Gauteng province, which on its own accounts for over 30 per cent of the country’s GDP.

South Africa’s economic outlook has improved despite rising inflation and a spate of strikes, the Bureau for Economic Research (BER) has raised its growth forecasts for 2007. Growth is now seen at 5.0 per cent in 2007, unchanged from last year and above the 4.5 and 4.8 per cent predicted in January and April respectively. Employment growth is expected to remain robust and will help shield the disposable income of households against the negative impact of higher food costs and interest rates.

South African growth has been mainly propelled by high consumer demand, but this has strained domestic supply, boosting imports. A resultant widening of the deficit on the current account has put pressure on the rand, which shed 10 per cent against the dollar last year and has lost another 3.5 per cent to date in 2007. The central bank is also concerned that consumer demand has been largely credit-driven, with household debt shooting up to 76 per cent of disposable income, despite 250 basis points worth of interest rate increases during the 12 months to June.

Growth should slow to 4.8 per cent in 2008 as consumers start to feel the pinch from higher interest rates. Inflation was expected to stay above 6 per cent year-on-year until the first quarter of 2008. The 2007 average was projected at 6.2 per cent, compared to previous forecasts of 5.6 per cent. In light of the higher inflation forecast another 50bps interest rate hike is expected in coming weeks.The Bureau of Economic Research’s (BER) latest analysis of South Africa’s economy indicates the growth outlook has improved over the past few months, with a smaller current account deficit and lesser inflationary pressures, but risks still remain. Improved exports and reduced demand for imports should lead to the current account deficit narrowing to 5.6 per cent of GDP in 2007 against an estimated 5.1 per cent in 2006. However, the deficit is predicted to widen again in 2008 to 5.5 per cent of GDP as imports rebound.

Despite South African consumers proving resilient against recent interest rate hikes so far, the BER expects consumer spending to ease this year as the higher interest rates take effect. Beyond the first half of 2008 the inflation outlook looked more promising, which may result in a moderate interest rate decline during the latter stages of next year. Though a stronger rand improves the inflation and interest rate outlook, the major concern is that a strong rand will lead to an increased current account deficit. Risks that could affect economic growth include higher oil prices and softer world economic growth. However, the biggest risk is if the rand does not weaken this year as expected, but rather moves back towards the R6.50/$ due to dollar weakness, higher commodity prices and strong capital inflows. Under such conditions SA will continue on the consumer driven growth path, which we feel is unsustainable in the long run. Production capacity needs to be fostered otherwise there will not be much industry left to benefit from the infrastructure investment surge.

Tunisia

Over the past decade, market-oriented reforms and prudent macroeconomic policies have contributed to placing Tunisia’s economic performance among the best in the region. Gradual structural reforms combined with a flexible exchange rate policy since 2000 have supported competitiveness and export growth. According to the IMF staff, the Tunisian economy continues to show strength and the outlook is favorable.

Real GDP growth remained relatively strong in 2006 and the external current account deficit narrowed significantly, notwithstanding unfavorable agricultural conditions, the expiration of the Agreement on Textiles and Clothing, and continued tepid demand in Europe. Growth is expected to accelerate, as agricultural production recovers and the service and industry sectors remain strong. While increased financial inflows present a challenge for monetary policy, the current macroeconomic stance remains appropriate and inflation subdued.

Despite drought conditions in the first half of the year that damaged agricultural output, real GDP expanded by 5.2 per cent in 2006. Growth in industry and continued expansion of services will boost real GDP growth to 6 per cent in 2007, easing to 5.6 per cent in 2008 (assuming an average harvest). Export volumes will rise in 2007-08 because of continued growth in domestic demand in the euro area, helped by the Tunisian dinar’s expected depreciation against the euro, and the implementation of several FTAs, despite increased competition in EU markets from Asian textile producers.

The inflation rate picked up sharply in 2006 as the government passed on some of the costs of continued high international oil prices to consumers in a bid to limit expenditure on subsidies and encourage energy saving. Food prices remained high as a result of the below-average harvest and high soft-commodity prices on the world market. Consequently, inflation averaged 4.5 per cent in 2006 (well above the government target of 2.7 per cent). Price growth has been weaker in early 2007.
Robust economic growth, will support continued demand. This will put some upward pressure on prices in 2007-08, as will reductions in fuel subsidies. Oil prices will also stay high. However, non-oil commodity prices should decline slowly in the latter part of the forecast period in particular, helping to contain imported inflation, and interest rates are expected to increase moderately. As a result, domestic price pressures should ease marginally, and we expect inflation to average just over 3 per cent in both years of the outlook period.

Tunisia’s solid track record in growth, expected to come in at 5 per cent this year, and political stability, alongside the government’s Robust export volume growth and the weakening of the dollar against the euro will clear commitment to economic reform, will mean ongoing investor interest in the country, with FDI climbing above the US$3.3bn seen in 2006. Rising crude prices present a worry in terms of inflationary pressures and pose a major risk to the external and fiscal positions.

In 2006 the Tunisian dinar weakened against both the dollar and the euro, which boosted Tunisian exports. In 2007 the dinar will appreciate against the dollar, to an average of TD1.29:US$1, and depreciate further against the euro, to TD1.74:1. In 2008 the dinar should strengthen only slightly against the US currency and be fairly stable against the euro, helping to maintain export competitiveness. Moves towards a floating exchange-rate regime will not occur within the outlook period.
Robust export volume growth and the weakening of the dollar against the euro will push export earnings up from US$11.5bn in 2006 to US$15.8bn in 2008. The import bill, which rose strongly in 2006, to US$14bn, is expected to continue to increase, to US$18.3bn in 2008, as world oil prices remain high and the industrial modernisation programme boosts demand for imports of capital goods. Falling tariffs on manufactured imports from the EU will also raise demand. With export earnings growing at a slightly faster rate than import costs the trade deficit should be fairly stable at around US$2.5bn in 2007-08.

Gabon

Robust economic activity in the non-oil sector suggests that Gabons efforts to diversify economic activity are starting to pay off. However, the economy is still highly vulnerable to a negative oil shock as economic activity in the non-oil sector will continue to be partly supported by significant public spending, facilitated by high oil prices. Following a sharp decline in 2006, oil production is forecast to grow moderately from an estimated 245,000 barrels/day (b/d) in 2007 to 251,000 b/d in 2008 and 257,000 b/d in 2009, as a result of new investment in mature oilfields and as new small oilfields come on stream.
 
The non-oil sector is expected to grow more robustly, by around 5 per cent, in 2007-08, as the country is attracting foreign direct investment (FDI) in the mining and forestry sectors and enhanced financial intermediation is facilitating access to credit by small businesses. Non-oil real GDP growth is forecast to accelerate in 2009 to 6 per cent as new infrastructure investments connected with the Belinga iron-ore project are expected to have a positive impact on gross capital formation and private consumption. Overall, we forecast that real GDP will grow by 4.5 per cent in 2007, 4.1 per cent in 2008, and 4.8 per cent in 2009, much higher growth than the annual rates achieved in the past decade. Click to learn the importance of data management in creating availability solutions including clarification of availability terminology.