2017 saw Emerging Markets (EMs) become the engine of global growth, creating a “demand shock” that must be welcomed for its potential to contribute to global inclusive growth and new economic opportunity. While it may not feel like it in South Africa, a fundamental economic shift is taking place in the wider emerging market world.
Deloitte’s Africa in 2018 Outlook Conference, scheduled for January 2018, is aimed at moving our focus from the local negativity, to gaining a better understanding of what is really taking place in EMs, and how Africa can contribute positively to a more inclusive global growth.
The conference will look at new technologies, and private entrepreneurial endeavours that are creating new business models and innovative commercial practices, as well as ways for Africa to industrialise and become more competitive. Speakers will address how to build businesses for the long-term, and discuss how to do business in a downgraded South Africa.
A positive projection for Emerging Markets
It has been a challenging past three years for EMs that are price-taking exporters of commodities, and for those that suffer the economic cost of poor political governance. The past year however, saw a U-turn in the overall performance of EMs, with some EMs faring better than others.
This upswing is due to a boom in middle-class consumption in key EMs that is creating new opportunities for employment, corporate profit, and economic growth in the global economy, and a sizeable increase in their spending power will become visible over the next ten years. Projections for GDP growth place the increased spend at US$9.1 trillion, between now and the end of 2026, in eight of the biggest emerging markets namely Brazil, China, Egypt, India, Indonesia, Mexico, Nigeria and South Africa. It is expected that the bulk of this expanded spending – 90% in fact – will be concentrated in China, India, and Indonesia.
Opportunities for Africa
The manufacturing sector holds the key to expanding value and supply chains, creating secure jobs and diffusing wealth throughout a society. China’s rising production costs in recent years have opened the door of opportunity for low-cost manufacturers around the globe. In fact, Justin Lin, former Chief Economist of the World Bank, calculates that China could lose up to 85 million jobs within the next decade or so. So where will these jobs go? On the African continent, Ethiopia is emerging as the best candidate to compete with China and Southeast Asia, in terms of attracting low-end, labour intensive manufacturing.
While developed markets face subdued growth prospects, investor sentiment towards EMs is now positive. The IMF forecasts EMs to grow by 4.5% in comparison to just 2% growth in developed markets. This potential growth stems not only from rising investor confidence, but also from an increased consumer demand from the burgeoning middle class in Asia and in countries where China’s low-end manufacturing is being located.
Given the right enabling policy frameworks, developing states can take advantage of the rising consumption being seen in the more robust EMs by creating domestic conditions favourable to attracting FDI into their manufacturing sectors. In addition to foreign investment, Africa has the potential to benefit from increased tourist flows and spend, as well as Asia’s emerging middle class’s rapidly increasing demand for services that will create massive employment opportunities in the hospitality, transportation and retail sectors.
Deloitte invites you to join the discussion at Africa in 2018 Outlook: The quest for inclusive growth. The discussion will revolve around improving the ease of doing business, how to enable entrepreneurship, and how to grasp the massive opportunities available to Emerging Markets.
This article was first published in the Sunday Times in September 2017, and was originally authored by Dr Martyn Davies, Managing Director of Emerging Markets & Africa at Deloitte, and Dr Yuwa Hedrick-Wong, Chief Economist, Mastercard Center for Inclusive Growth.