Following are five big themes or events likely to make waves in emerging and frontier sub-Saharan Africa during 2012:
Nigerian Economic Reforms
– Nigerian President Goodluck Jonathan opened 2012 with a bold statement of intent, scrapping popular but hugely wasteful fuel subsidies as the first step in a long-awaited push to reform the economy of Africa’s most populous nation.
The unexpectedly harsh move, which at a stroke doubled the price of fuel in the continent’s biggest crude exporter, drew condemnation from unions and opposition politicians and sparked protests in the commercial capital, Lagos.
Whether those demonstrations snowball into a significant challenge to Jonathan’s authority will be crucial in determining the future of his wider reform push — most notably a shake-up of the woefully inept power sector.
The subsidies’ removal has the backing of Finance Minister Ngozi Okonjo-Iweala and central bank governor Lamido Sanusi, who viewed them as a drain on the public purse that merely encouraged waste and shoved billions of dollars of government cash to a cartel of wealthy fuel importers.
However, it is far from certain that Nigeria’s 150 million people will swallow the increases, especially since many will remember military ruler Sani Abacha, who attempted the same in the 1990s but was forced into an embarrassing climb-down in the face of massive popular opposition.
An imminent showdown is brewing, with unions threatening a national strike next week, including a shut-down of large parts of the oil industry. The outcome is likely to have lasting repercussions.
– Although it is unclear when they will be held, looming presidential and parliamentary elections in Kenya are likely to form the backdrop of all that happens in east Africa’s biggest economy given the carnage that followed voting in late 2007.
Uganda, Tanzania, Rwanda, Ethiopia and South Sudan will also be watching closely for fear of a repeat of the ethnic clashes that killed 1,300 people and shut down regional trade routes for weeks.
A new constitution drawn up since then to try to prevent a repeat stipulates that the election should be held on Aug. 14 2012, but cabinet is pushing for a December date, citing logistical hurdles.
As well as acting as a brake on investment, political pressure for pacy economic growth may spill over into monetary policy – as analysts suspected it did a year ago when the central bank failed to take action against accelerating inflation.
Easing inflation and firming currencies
– Galloping inflation, most notably in east Africa, was one of the big themes of 2011, especially when policymakers dithered in the face of rising prices and currencies started to weaken sharply.
But that cycle appears to be over, pointing to more stable currencies across the region and easing interest rates as the year progresses.
The central bank in Uganda, the regional economy where prices rose first and fastest 12 months ago, called the top of the cycle this week, saying inflation was on its way down after peaking in October at an 18-year high of 30 percent.
Kenyan inflation slowed in December for the first time since October 2010, suggesting it too may have turned the corner – especially given the shilling’s 20 percent appreciation against the dollar since October 2011.
Of other African currencies, South Africa’s rand is likely to remain largely at the mercy of the euro zone’s stranglehold over global investor sentiment, while Nigeria’s naira is likely to hold around its current levels if oil prices and production stay on a broadly even keel.
South African Economic Policy
– There are no public elections in Africa’s biggest economy this year, but politics are set to dominate the headlines as the ruling African National Congress (ANC) counts down to a December conference that will anoint its next party leader.
The most likely outcome is for President Jacob Zuma to be re-elected head of the former liberation movement, paving the way for a second term in Pretoria in 2014.
However, the previous such ANC meeting, in the northern city of Polokwane in 2007, was a disorderly affair that ended with a successful party coup led by the unions against then-President Thabo Mbeki.
With growth half what it was five years ago, any opposition to Zuma at the December meeting is likely to coalesce around his handling of the economy.
Mining could well become a political football following sustained calls from the ANC Youth League for nationalisation of the sector, although broader investment and industrial policy and the central bank’s anti-inflation mandate could also get sucked in due to unemployment stuck at 25 percent.
Last year’s 19 percent drop in the value of the rand has muted the cries of unions demanding intervention to weaken the currency, although a retracement this year could reignite the debate over the currency’s free float.
– Annual regional growth of 5 percent or more over the last decade has made sub-Saharan Africa an attractive hunting ground for equity investors, although a lack of liquidity and listed firms outside South Africa has hampered stock market investment.
With its longer time frames and highly specific nature, private equity faces no such constraints, and the signs are 2012 could be a big year for the industry on the poorest continent, where growth is forecast at a brisk 6 percent.
U.S. firm Carlyle Group is set to open offices in Johannesburg and Lagos and is expected to announce the closing of its first Africa fund, while London-based Helios is likely to deploy capital after closing a $900 million Africa fund in June.
In addition, other avenues of financing for African governments and companies are being squeezed as rich country budget problems crimp development aid and nervous international banks continue to keep a tight rein on credit, especially to ‘risky’ projects – as nearly everything in Africa is defined.
Most private equity interest is likely to be in the consumer goods, telecommunications and financial services sectors, all of which benefit directly from Africa’s strong economic and population growth.