BrazilAfrica Forum, Brazil 0910 June 03 Politics, Cooperation

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Brazil-Africa Forum, Brazil 09-10 June
03Politics, Cooperation TradeAccess to the
African Market Vusi GumedeThe Presidency,
RSAPolicy Coordination Advisory Services
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Contents

• Characteristics of the Brazilian Economy
• Characteristics of African Economies
• NEPAD Market Access Initiative
• Investment Dynamics in Africa
• Logistical Challenges in Africa
• Critical Areas for Market Access Investments in
  Africa

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The Brazilian Economy

• Introduction of the Real Plan in 1994 for
  reducing inflation through monetary policy
  reforms
• External shocks of 1995 (Tequila effect), 1997
  (Asian crisis) 1998 (Russian crisis) affected
  monetary reforms and the crawling peg system of
  1995/ 1999.
• A floating exchange rate regime was adopted in
  Jan 1999 an Inflation targeting regime was put
  in place in the 2nd quarter of 1999. GDP grew by
  4.4 in 2000 compared with 0.8 of 1999
• Between 2001 2002, the Brazilian economy was
  hit by several external shocks (e.g. Argentinean
  crisis) and the global economic slow down of the
  world economy further compounded the economic
  problems of Brazil. The energy crisis, September
  11, and uncertainties about the future of
  macroeconomic policies under the then upcoming
  government further exacerbated the problem. The
  Real depreciated by about 54 in 2002.

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The Brazilian Economy

• Macroeconomic challenges
• Net public debt increased from 36 in 1998 to 56
  in 2002
• Currency depreciation further increased net debt,
  given that about 30 of debt in Brazil is US
  linked
• Interest rates increased significantly
  inflation remained unabated
• Turnaround
• Current account balance improved in 2002 GDP
  growth remained positive, although very low (1.2
  in 2002)

5
African Economies

• GDP growth slowed to 3.1 last year compared with
  4.3 in 2001 (3.1 in 1999 3.3 in 2000)
• Inflation lowered to 9.7 last year compared with
  13 in 2001 (12 in 1999 14 in 2000).
• Total external debt as a share of GDP declined to
  56 in 2001 from 65 during 1991-2000.
• The fiscal deficit (as a share of GDP) declined
  to 2 in 2001 from 3 during 1995-1999. There
  are other key macroeconomic variables, such as
  FDI inflows, which performed well in the last
  year
• Intra-African trade remains low (i.e. 9.3 of
  total African exports 9.6 of total African
  imports)

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African Economies

• Around 40-45 of the African population live in
  poverty, with 30 classified as extremely poor.
• In 2002, 2.4mil people in Africa died of HIV/Aids
  related diseases compared to 3.1mil globally
• ODA into economic infrastructure declined to 15
  of total ODA in 1995-2000 from 23 in 1975-1980
• Total agric food production grew by 2.8 in
  1995-2001 whilst population grew by 2.4 in the
  same period
• There are some positive social trends (e.g. adult
  literacy rate increased to 62 in 2001 from 30
  in the 1960s)

7
African Economies - Outlook

• Substantial progress is taking place towards
  sound macroeconomic management underlying
  macroeconomic fundamentals are improving (e.g.
  GDP growth rate projected to 4.2 this year
  inflation expected to fall even further)
• Industrialization and product export
  diversification are gradually improving
• Progress on conflict resolutions in the DRC,
  Sudan and Ivory Coast expected
• Progress towards accomplishment of NEPAD
  objectives the MDGs
• Progress on Doha and agric subsidies critical
• Resilience to exogenous shocks critical
• Global economic outlook etc also critical

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Key Elements of NEPAD Market Access Initiative

• Capacity building for trade policy, market access
  strategies, trade negotiations skills and related
  institutional development
• Compliance capacity in regulatory and
  administrative framework
• Supply-side support

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Investment dynamics in Africa

• Private capital flows into Africa increased more
  slowly than other developing countries in the 1st
  half of 1990s
• However, Africa did not experience sharp
  reversals of flows seen elsewhere
• Half of FDI has been into oil-exporting countries
  (Angola Nigeria). FDI is 23 of GFCF for oil
  exporters versus 8 for non-oil exporters
• However, rate of growth of FDI same for both oil
  non-oil exporting countries
• FDI is 12 of GFCF in Africa compared to 8 for
  Developing Countries 6 for LDCs
• Realized returns declined from 30 in early 1990s
  to 21 later

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Investment dynamics

• Volatility of returns, 7 for Africa compares
  well with 6 for South America 5 for the
  Middle East (compared to 2 in Asia Pacific 1
  in the Caribbean)
• Although volatility in returns is higher in
  Africa, the rate of returns are much higher than
  those of South America (return of South America
  are half those of Africa)
• (These results are not yet fully explained.
  Among factors that seem to explain them include
  poor competition uncertainties linked to
  negative perception about Africa. Another recent
  hypothesis is that higher huddle rates are
  connected to negative perceptions about Africa.
  Another hypothesis is that investors place an
  African Premium associated with the African
  Perception)

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Investment dynamics

• RSA hosts the largest number of subsidiaries of
  the top multinationals
• Investment is largely market seeking
• Type of investments (greenfield vs acquisition)?
• Foreign exchange issues and regulatory
  uncertainties affect investment decisions
• (How do these issues impact on the real
  economies of Africa? What is this uncertainty?
  What about sunk costs, information flows, market
  intelligence, business linkages, etc)

12
Logistical challenges in Africa

• Efficiency reliability of logistical
  infrastructure value chains
• Unequal levels of economic development
• Poor maintenance of key economic infrastructure
  (rail, road, ports, etc)
• High costs of infrastructure weak regional
  coordination
• (NEPAD aims at meeting these through better
  planning, regulation coordination. There are
  also projects that are to be revamped/ modified
  or introduced, i.e. North-South Corridor the
  Great Lakes Railway)

13
Critical areas for market access investments

• Agric land management use
• Multilateral negotiations (for agric non-agric
  products for TRIPS Public Health)
• Intra-Africa Trade South-South Relations
• Industrialization Economic Development
• Infrastructure logistics
• Energy ICT
• Water resources management
• Construction
• Mining mineral beneficiation
• Agro-industries
• Human Resources Skills Development
• Eco-Tourism
• Privatization