African economies are forecast to be facing turbulent times in 2023 due to domestic and external issues, but while some nations will suffer, others are forecast to achieve strong growth thanks to a focus on battery, critical, and energy metals.
An Economist Intelligence Unit (EIU) report has suggested that Africa’s resource-intensive economies and major commodity exporters will face challenging market conditions amid a global economic slowdown, but the outlook is far from gloomy as export prices remain reasonably high and competition remains intense for Africa’s resources.
EIU also suggested that domestic price pressures will remain elevated – although inflation will ease back from the highs of 2022 – and monetary policy will tighten across much of Africa, while the cost of international capital will rise substantially for some economies.
According to the EIU, Africa’s economic recovery has been disrupted in 2022 by a range of internal and external shocks, including adverse weather conditions, rapidly rising rates of inflation, higher borrowing costs, and softer demand in major export markets.
Some of these factors will subdue growth prospects in the year ahead, but the region overall is expected to hold steady rather than suffer a major downturn in economic growth – both North Africa and Sub-Saharan Africa are forecast to grow by 3.2% in 2023. The EIU expects almost all countries in Africa to continue to grow, although real GDP growth rates will vary considerably across the region and some states will stagnate and teeter on the brink of recession.
African mineral riches
Africa is well known as a wealth of hugely valuable and extractable natural resources, making its mining industry one of the most important in the world. It is a major producer of many key mineral commodities, with bountiful reserves of metals and minerals such as gold, diamonds, cobalt, bauxite, iron ore, coal, and copper across the continent. Some of the major mining countries in Africa are Democratic Republic of Congo (DRC), South Africa, Namibia, and Zimbabwe.
South Africa, Nigeria, Algeria, Angola, and Libya produce more than two-thirds of Africa’s mineral wealth, according to a new EIU report.
Elevated commodity prices are fuelling an export boom across the continent, and high prices for copper, oil, iron ore, aluminium, and gas will stoke investments and are all helping to reduce external imbalances, stabilize currencies and boost economic growth.
Investment Monitor suggests that the mining and gas sectors are expected to lead foreign direct investment (FDI) into Africa in 2023.
A recent report noted that after a disappointing 2022, FDI in Africa looks set for a strong 2023 thanks to some lucrative mining and gas projects.
It said FDI flows into Africa are expected to pick up in 2023 – with mining and gas projects leading the way – following a lacklustre investment climate during 2022.
In 2021, the continent saw FDI rebound strongly after the sharp decline in 2020 prompted by the COVID-19 pandemic – FDI to African countries hit a record US$83B in 2021, according to the UN Conference on Trade and Development (UNCTAD) World Investment Report 2022. This was more than double the amount reported in 2020.
However, despite the robust growth during 2021, investment flows to Africa accounted for only 5.2% of global FDI, up from 4.1% in 2020. While most Africa countries saw a moderate rise in FDI in 2021, about 45% of the total was due to one intra-firm financial transaction in South Africa (a share exchange between Naspers, the South African internet and technology company, and Prosus, the global investment group, in the third quarter of 2021).
Furthermore, although the official FDI statistics for 2022 are not available yet, experts say that anecdotal evidence indicates that inflows during 2022 were weaker than 2021 in the wake of the deteriorating global economic environment and security situation.
“Anecdotally, FDI inflows into Africa were a bit disappointing during 2022,” says Isaac Matshego, an economist at Nedbank, which is based in South Africa.
“Global conditions were less favourable and financing conditions were tighter amid rising interest rates globally. I expect FDI into the region to pick up during 2023, but the global environment is certainly less favourable than before the pandemic. The disruption to global supply chains is not helping the situation and the international flow of capital is under pressure.”
South African PGM decline impacts global markets
Platinum may record a long-anticipated deficit in 2023 as demand from automakers rebounds
As of 2021, South Africa was the world’s largest producer platinum as well as palladium, another PGMs.
The platinum sector has the highest number of employees in South Africa’s mining industry, employing nearly twice the number of gold mining and coal mining employees.
A decline in South African platinum production is being tipped and lead to a resurgence in global platinum prices in 2023 due to growing global demand for the critical metal.
The world’s top platinum-mining country and a major producer of palladium, South Africa also holds the world class reserves of PGMs globally at 63Mkg.
The Bushveld Complex is the largest PGMs resource in the world and represents approximately 75% and 40% of annual global production of platinum and palladium, respectively.
According to the World Platinum Investment Council (WPIC), platinum may record a long-anticipated deficit in 2023 as demand from automakers rebounded and supply from South African primary production remained constrained.
Leading South African PGM producer Anglo American Platinum recently cut its production forecast for 2023 and 2024 due to lower grades at its Mogalakwena operations and lower volumes from Amandelbult, but 2022 output remained within target.
The company said refined PGM output for 2023 and 2024 is now expected to be between 3.6Moz and 4Moz, lower than the initial guided range of between 3.8Moz and 4.2Moz for 2023 and 4.1Moz and 4.5Moz in 2024.
Investment education-focused website The Armchair Trader recently noted that maintenance and power supply issues in South Africa caused the country’s platinum output to drop by 18% in the third quarter of this year. Given South Africa’s prominent role in mining – it mines over 70% of the world’s platinum – global supply is expected to be 9% lower this year compared with 2021.