Economic Development / Extra Mile

Emerging But Unsettled Markets in the Middle East and Africa

The Middle East and Africa offer growth and promise, but even some of the best prospects are volatile and full of risk.

June 3, 2014
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The Middle East and Africa are host to a number of emerging markets. They are also often the focus of social, political and economic upheaval. This volatility speaks to the need for careful attention when weighing the risk/reward of sourcing or selling in these markets.

Egypt is reemerging from the regime change that resulted from the revolution that became known as the Arab Spring. The political situation is far from settled. President Mohamed Morsi, elected in the wake of the Arab Spring, was removed from office and a caretaker government was put in place until parliamentary elections scheduled for June.

Economic activity is expected to increase modestly in 2014, assuming some political stability after the elections. One area of the economy which will benefit significantly is tourism (16 percent of Egyptian GDP, according to Coface).

A larger concern for the supply chain and trading communities is the Suez Canal. Increased world trade should benefit the canal. But that needle is moving very slowly, so the benefit will be small.

Infrastructure projects should start to get back on track in Egypt. Addressing development in the region, the Business Monitor International says, “The markets hold huge potential in energy infrastructure and projects flowing from national (re)construction efforts. The risks from a still politically uncertain environment remain, as recently evidenced by Egypt.”

The Business Monitor International analysis adds, “Despite high demand for investment in infrastructure, the government’s capacity to fund projects is limited, and Egypt continues to be highly dependent upon loans and financial assistance from allies and neighboring countries.”

Currency depreciation is on the Coface list of economic challenges, though the group sees the country’s deficit narrowing. A Coface report also reiterates the importance of the aid Egypt continues to receive from other Arab countries and the questions that remained over additional aid from the International Monetary Fund (IMF).

The third largest public/private partnership project in Egypt, according to the Business Monitor International, is the Safaga Port. The port is located on the west coast of the Red Sea. The estimated cost of the project is $858 million. The principal beneficiary of the development appears to be the United Arab Shipping Company’s Asia-Europe route.

While much world attention has focused on the Panama Canal expansion, a rule change at the Suez Canal could benefit larger container ships. According to Business Monitor International, work on the Ballah bypass allows it to handle 13,000 twenty-foot-equivalent (TEU) vessels, and this could shorten the voyage to Asia from Europe by as much as half a day in sailing time.

Air freight has been returning to Cairo International Airport, and resulting volumes should be 3.7 percent higher year on year in 2014.

The N in MINT

Nigeria is the N in the new acronym for emerging nations to watch — MINT — and Africa’s largest economy. (The others are Mexico, Indonesia and Turkey.) Theft and sabotage have affected the petrochemical sector in Nigeria, says Coface. Non-oil sectors such as construction and manufacturing will now be the main drivers in economic growth.

Privatization of the national electricity company should improve electricity supply and, as a result, improve prospects for industrial production, says Coface. Further improvements are also needed in infrastructure if the goal of diversifying the economy is to gain any ground. On the positive side, developments at West African ports have increased container capacity, and Nigeria has been investing in its long-neglected rail system. All modes are forecasting growth, and trade growth is expected to reach 7.8 percent in 2014 and average over 6 percent to 2018.

Security remains a major concern. Partisans of the Movement for the Emancipation of the Niger Delta (MEND) are active in the oil production regions, and Islamist groups have also become more active. In addition, the government must address pervasive corruption.

In addition, Nigeria will hold a presidential election in 2015, raising some concerns for the continuation of various infrastructure projects and reforms.

South Africa

Post-apartheid South Africa has accomplished much with is democracy, including a resemblance to the factional politics and sharp-tongued attacks of other democracies. Growth is expected to be slow — almost lethargic — and much attention was focused on the South African elections. Questions were being raised about how much dominance the African National Congress would retain in a country that is divided by multiple languages, ethnic groups — and a large number of political parties appealing to their own portion of the diverse South African population. The views of Alana Bailey, deputy CEO of AfriForum, reflect some of the unsettled mood going into its May elections. AfriForum is a non-profit, non-governmental organization (NGO) which states its purpose is to represent minorities, especially Afrikaners.

In her article, Bailey suggests opposition parties were likely to gain about one-third of the votes in the South African elections. She poses the question, “Are post-apartheid politics also shaped by struggles for resources, identity politics and civil society?”

Bailey said on April 19th, anti-apartheid icon and former archbishop Desmond Tutu led a march against government corruption in Cape Town. Tutu, who has stated he would not be voting again for the ruling African National Congress (ANC), was flanked by representatives of the Muslim and Jewish communities. Also next to him were representatives of churches with predominantly Afrikaner, English-speaking white and so-called colored members, Bailey noted.

“During the past five years, the ANC’s Jacob Zuma has literally stated that the ANC will rule until Jesus returns and that ANC membership provides a straight ticket to heaven,” Bailey said. However, the ANC has been unable to break the hold of opposition parties on the non-black ethnic minorities: the Afrikaners, the brown or colored population, English-speaking whites and Asians, she continued

These minorities constitute about 20 percent of the population of 52 million people. They are concerned about preferential labor policies they say favor blacks, government policies that may weaken property rights and democratic institutions, and the national government’s failure in combating violent crime.

Surveys indicate that most of the 2.5 million Afrikaners and the 2 million English-speaking whites were expected to use their vote for opposition parties like the multiracial Democratic Alliance (DA) or other smaller parties. Similarly, many voters from non-black minority communities were expected to support the DA in the elections.

In addition, members of many communities have turned to self-help organizations to provide services that the government is not fulfilling, Bailey says.

She explains AfriForum is a civil rights group and claims it is the most active NGO “protecting the constitutional rights of minorities through court actions, protest marches, social media campaigns and self-help initiatives in communities.”

Commenting further on the mood of voters, she says local and regional dynamics also shape politics. In the Western Cape, national minorities constitute most of the voters, she says. “So-called brown people, nationally about 9 percent of the population, constitute 48 percent of the provincial population. Afrikaners and English-speaking whites, who form only 9 percent nationally, constitute about 16 percent of the provincial population.”

Ebrahim Rasool, a former Western Cape ANC leader, recently admitted that there is also less enthusiasm for the ANC among these communities and Cape Muslims than a decade ago. As a result, the Western Cape is likely to be the only one of nine provinces to be ruled by an opposition party after the election.

However, ethnic identity politics also operate among black voters and inside the ANC. It is often forgotten that South Africa’s black population consists of at least nine communities with their own cultural traditions, languages and historical territories. None of them constitutes a majority in a population of almost 52 million people.

However, she notes, under Zuma, massive membership drives resulted in Zulus constituting 25 percent of ANC members. Most key decision-makers in the security services and key levers of power are now Zuma allies, and many of them also happen to be Zulus.

According to Professor Susan Booysen of Witwatersrand University, the ANC liberation struggle still resonates with black voters. Increasingly, however, patronage and access to power motivate many voters to support the ANC.

Some Zulu nationalists in the ANC argue that Xhosas had their chance to share in patronage for almost 15 years under the presidencies of Nelson Mandela and Thabo Mbeki. In their view, Zulus should now have the same chance under Zuma and his successors, Bailey observes.

Inside the ANC, factions among non-Zulu groups have become increasingly critical of Zuma’s selective patronage and lack of service delivery. In 2013, at a prayer service for Nelson Mandela, a fellow-Xhosa and AbuThembu king Buyelekhaya Dalindyebo referred to President Zuma as a “nonsensical Zulu boy” and to ANC representatives as “corrupt hooligans.”

The rising opposition Economic Freedom Front (EFF) is also capitalizing on widespread resentment about government corruption and selective patronage. The EFF’s leader, Julius Malema, hails from Limpopo, where most black people are from the Venda, Tsonga or Shangaan communities, says Bailey.

In 2013, Zuma mentioned that if he had not already been married to four wives, he would not mind marrying a woman from the Venda group, because they were submissive. The EFF immediately protested against Zuma, calling him a “cultural chauvinist.”

The EFF also pushes for a faster transfer of land to black owners and for the nationalization of banks and mines. The EFF appeared to be set to become the official opposition party in provinces like North West Province, Mpumalanga and Limpopo. Many of its views are shared by trade unions like NUMSA.

 The post-apartheid democracy will be shaped by party politics and civil movements, but also by identity politics and factional struggles for patronage. 

Recent Articles by Perry Trunick

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