abdullah cerachia ceos_forum 21 november 2011

The Rise of the New World’s Frontier and Emerging

Markets: Implications for the Global Economy

Presentation to the EDP CEOs Forum

Cape Town South Africa

21 November 2011

CONFIDENTIALITY and DISCLAIMER: This document and its contents are strictly private and confidential, privileged and for the information of the

intended recipient only. Frontier Advisory makes no representations or warranties in respect of the content of this document, and will not be liable for any

loss or damage of any nature that may arise from this document, the content thereof or your reliance thereon. Should you have received this document in

error please contact the sender immediately and destroy this document.

Contents

The Global Economy*

* as we should

know it

Share of the Global Output, 1 AD

The Rise of the BRIC’s

Is South Africa a “deserving member”?

The Shift in Wealth

The Geo-Economic Shift

The Changing World…

“One of the landmarks of change in 2011 will

be China overtaking America as the biggest manufacturer. But China too could find itself being overtaken by India in economic growth, in what would be a sign of things to come.”

Michael Pilkington

Editor, The Economist

The Economist: The World in 2011

Economic Uncertainty

Global Current Account Imbalances

Many western economies, particularly the US, ran significant current account deficits that were financed by

current account surpluses in emerging Asian economic powers, particularly China. As the world’s emerging

economies transformed themselves from debtor to creditor economies, geo-economic power began to shift.

US$14.767 trillion debt debacle (3:15pm, Mon26Sep)

Impact of Crisis on GDP & Unemployment

Why its bad to have Lehman Brothers on your CV

Emerging vs. Developing Market Performance

Emerging vs. Developing Crude Oil Consumption

Source: BP Statistical Review of World Energy

Raging cost of living

Global Cost of Living

Real GDP % Performance – Europe

North vs. South Europe

Debt is out of control (June2011) – Global Debt Clock

Debt “Recovery” (June2011)

African Leading Lights Debt (June2011)

Source: Bloomberg,

International Monetary Fund

That Debt Problem

Source:

World Economic Forum Global

Competitiveness Report 2011

16/10/2010

The Race to the Bottom

Outcomes of the G8 2011 Summit in Deauville

“G8 Summit – a breakthrough

for the Tunisian economy.”

- Tunisia live.net 17/05/2011

“G8 Disappoints Sub-Saharan

Africa”

- All africa.net 28/05/2011

Source: Thomson Reuters DataStream; EPFR

Financial Times, 14 January 2011

The Resulting Impact on Emerging Markets

Real GDP Per Person Q4 2007-Q2 2011 % Change

And in Other World News… Key Developments in 2011 and Outlook going forward?

Japan’s Devastation

…and the whole event was captured live

North Africa’s Devastation

“Tunisia Elections 2011: Voters Turn Out For First Free Vote”

– Huffington Post 23/10/11

What about Libya?

Libya – Impact on the Rest of the World

26/02/2011

Consequences for global oil supply It is reckoned that Libya has the largest proven oil reserves in Africa (± 44 billion barrels) – theoretically provide enough oil for another 76 years of production Main oil-producing companies in Libya:

BUT

Libya – Impact on the Rest of the World

26/02/2011

Oil output in Libya has been cut by 50% Oil prices have risen and are set to rise even further

If oil prices rise to US$ 200 a barrel, it could lead to a double-dip recession worldwide

2 March 2011 US$ 115.96

Addressing the Facts

Unemployment Rate

GINI Coefficient

Corruption Index (out of 178)

Human Development Index

Press Freedom (out of 196)

Democracy (out of 167)

Young Adult Population (% under 25)

Tunisia 13.1% 40.0 59 81 (0.683) 186 144 42.1%

Egypt 9% 34.4 98 101 (0.620) 130 138 52.3%

Libya 13% N/A 146 53 (0.755) 192 158 47.4%

Bahrain 3.7% N/A 48 39 (0.801) 153 122 43.9%

Yemen 35% 37.7 146 133 (0.439) 173 146 30%

Algeria 9.7% 35.3 105 84 (0.677) 141 125 47.5%

Morocco 9.1% 40.9 85 114 (0.567) 146 116 47.7%

Iran 14.6% 44.5 146 70 (0.702) 175 158 34%

Oman ± 15% N/A 41 N/A 153 143 51.5%

Iraq 18% N/A 175 N/A 144 111 60.6%

Jordan 12.5% 39.7 50 82 (0.509) 140 117 54.3%

The Young and the Restless?

The Young and the Restless?

• There are currently 5 65 320 Facebook users within Egypt • 50% of these users are between the ages of 18-24

• There are currently 305 420 Facebook users within Libya • 70% of the users are between the ages of 18-34

Top 10 for 2011

Competitiveness in Africa

Country 2005 2006 2007 2008 2009 2010 2011

SA 42 36 44 45 45 54 50

Mauritius 52 55 60 57 57 55 54

Namibia 63 72 89 80 74 74 83

Botswana 48 57 76 56 66 76 80

Nigeria 88 95 95 94 99 127 127

Egypt 53 71 77 81 70 81 94

Morocco 76 65 64 73 73 75 73

Zimbabwe 109 112 129 133 132 136 132

Selected African economies performance (2005-2011)

Source: World Economic Forum

The Rise of Emerging Markets

Tables have Turned

The recent

economic crisis

has shifted the

global power

balance

Balance of Power is Shifting East

Balance of Power – where’s the growth coming from?

The rise of the BRICs Output Growth Gap of Emerging vs. Advance Economies

Source: Relevant Country Statistical agencies and

Central Banks

Foreign exchange reserves

The Pockets are Full!

Sovereign or Saviour Wealth Funds?

Saving for Luxury Things & Times

Source: IMF - World Bank Data

Drug Dealer and Addict Syndrome

Over- indebted US consumers go on an unsustainable binge

Unsustainable Chinese export drive, built on cheap currency

$s earned from export drive went back into USA

↓ interest rates

↑ housing prices

Encourages US to loan more to buy more Chinese goods

“After 1989 capitalism saved China. And after 2009 China saved capitalism”

- David Miliband, Britain’s foreign secretary

Is Goldman Sachs Forecasting Still Relevant?

• Know your competitors

• Take a hard look ahead, anticipate the challengers

• Design a strategy for the new outlook

– create your own challenger

• Evaluate your operations and nurture your customer ties

• Find ways to ride the wave of globalisation instead of fighting it

– look for new opportunities

Implications of Emerging Markets on Established MNCs

Emerging Africa

Africa’s Abysmal Brand

May 2000 June 2003 August 2002

Reporting on Africa

July 2005 March 2008 September 2009

Africa in Perspective

Africa as a Frontier Market of 1 Billion

Africa’s Frontier Markets are Looking Up

The Economist’s Top Growers 2001-2010

Source: Economist and IMF forecast

The Economist’s Top Growers 2011-2015

Source: Economist and IMF forecast

How is Africa doing?

Algeria

Angola

Benin

Burkina Faso

Burundi

Cameroon

Cape Verde

Central African Republic

Chad

Comoros

DRC

Republic of Congo

Côte d'Ivoire

Djibouti

Egypt

Equatorial Guinea

Eritrea

Ethiopia

Gabon

The Gambia

Ghana

Guinea

Guinea-Bissau

Kenya

Lesotho

Liberia

Libya

Madagascar Malawi

Mali

Mauritania

Mauritius

Morocco

Mozambique Namibia

Niger

Nigeria

Rwanda

São Tomé and Príncipe

Senegal

Seychelles

Sierra Leone

South Africa

Sudan

Swaziland

Tanzania

Togo

Tunisia

Uganda Zambia

Zimbabwe

BHP Billiton, 52.8

0.1

1

10

100

1000

Gro

ss D

om

est

ic P

rod

uct

, Cu

rre

nt

Pri

ces

(In

bill

ion

US$

)

2010 GDP for African Countries (in billion US$)

Source: IMF Data, Frontier Advisory

Only 8 African

Countries had a

GDP in 2010 that

was higher than

BHP Billiton

Creating Frontier Markets in SSA

Growth underwritten by rising commodity prices; and from low base

Improved macro-economic framework

Capital inflows from BRIC economies

SA Inc pushing North, ME sovereign wealth pushing South

Rollout of sizeable infrastructure development

Remittances as a capital provider

Slowly improving intra-regional trade networks

Deepening capital markets – growing equity culture

Emergence of “African multinationals”

Urbanisation and increasing African consumer spend

Africa Today

US$1.6tr – Africa’s collective GDP in 2008

US$860bn – Africa’s combined consumer spending in 2008

316m new mobile phone subscribers signed up since 2000

60% of worlds’ total amount of uncultivated, arable land

52 Africa cities with more than 1m people each

20 African companies with revenues of at least US$3bn

But large and varying topography, languages, cultures

Still limited intra-Africa trade and investment

Africa – the untapped market of the future

US$2.6tr – Africa’s collective GDP in 2020

US$1.4tr – Africa’s combined consumer spending in 2020

1.1bn African of working age in 2040

128m African households with discretionary income in 2020

50% of Africans will be living in cities by 2030, and

urbanisation offers further productivity and income

opportunities

2bn African consumers by 2050

Continued strong growth trends given changes in global

economy and internal changes in continent’s societies and

economies

Contributors to Sub-Saharan African Growth

Growth underwritten by rising commodity prices

Improved macro-economic framework

Capital inflows from BRIC economies

SA Inc pushing up North, ME sovereign wealth pushing South

Rollout of massive infrastructure development

Remittances as a capital provider

Slowly improving intra-regional trade networks

Deepening capital markets – growing equity culture

Emergence of “African multinationals”

Increasing African consumer spend

SA Inc. as an Emerging Actor in Africa

The Privatisation of Aid

To Conclude…

Concluding Thoughts

• From “De-coupling” to “New Coupling”

• Emerging markets are the new drivers of growth and determinants of

the global growth cycle

• Over the medium term, African economies that align their development

needs to the EM reality will succeed, the rest will falter

• States are becoming more interventionist – “The Developmental State”

• Africa will be further marginalised from traditional economies….

• But will gravitate toward the BRICs

• We must differentiate between the growth story and true development

• Geo-strategic economic maps are being redrawn

CONFIDENTIALITY and DISCLAIMER: This document and its contents are strictly private

and confidential, privileged and for the information of the intended recipient only. Frontier

Advisory makes no representations or warranties in respect of the content of this

document, and will not be liable for any loss or damage of any nature that may arise from

this document, the content thereof or your reliance thereon. Should you have received this

document in error please contact the sender immediately and destroy this document.

www.frontieradvisory.com

abdullah cerachia ceos_forum 21 november 2011

Business