Powering Africa's economic & social potential; global yields, Italian bonds, India opening up, CBAM birthday and female unpaid labor

An African proverb says ‘If you want to fast, go alone. If you want to go far, go together.’ Our latest analysis found that the African continent is showing much greater resilience than expected, given the set of macro-financial conditions; however, enhancing critical investment and liquidity conditions across Africa will be vital to redress balance of payment imbalances. More details on Africa’s undervalued resources – raw materials as well as a young population and what role investors, insurers and pension funds can and should play to support the development of the African economy further. Further topics for you to watch out for include the latest development on global yields, how Italian spreads have fared recently, India’s inclusion into the EM local currency sovereign bond index, a closer look at the implications of the Carbon Border Adjustment Mechanism for overseas firms, as well as our calculations of how much excess unpaid labor women give away every year – and how this relates to remote work.

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Going together and going far – Powering Africa's economic and social potential

Africa‘s remarkable economic resilience and adaptability have been on full display, with numerous countries maintaining solid growth rates despite challenging conditions. This resilience, coupled with the continent‘s lower growth volatility compared to other regions, offers an inviting landscape for investors. It not only encourages increased investor engagement but also promises expanded market opportunities and a generally positive business environment. Moreover, Africa‘s wealth of underutilized resources and its demographic dividend provide compelling prospects for long-term investments, provided the necessary foundational elements are put in place. In the face of complex geo-strategic challenges, investors, insurers, and pension funds hold a pivotal role in providing crucial financial support to nurture Africa‘s economic development and create a stable atmosphere conducive to growth. The highlights:

• The African continent is showing much greater resilience than expected, given the set of macro-financial conditions. Economic resilience and adaptability to prolonged political violence, events leading to business interruption and challenging financing conditions will set the stage for an acceleration in 2024-2025 as many growth enablers persist. Africa also retains lower growth volatility than other regions, with positive effects on investor penetration, market expansion and overall business sentiment. If the continent’s GDP growth resumes the pace of 2000-2010, the economy will reach USD4.6trn by 2030, equivalent to a USD1.7trn increase.
• Enhancing critical investment and liquidity conditions across Africa will be vital to redress balance of payment imbalances caused by the asymmetric commodity price shock and tackle periodic currency devaluations. Effective implementation of the African Continental Free-Trade Area may result in an average income increase of +7% among member countries by 2035, while increased trust and trade credit will free up to USD65bn or 2% of Africa’s GDP to be reinvested into the real economy. Strengthening legal frameworks and deepening financial and technological infrastructure will be key to attract foreign direct investment and unleash economic growth. This will not only improve the countries’ fiscal position but also lead to the development of a more efficient and inclusive financial system, benefiting both domestic and international investors.??
• Africa is also home to plenty of undervalued resources, including 24-92% of global reserves of critical raw materials such as platinum, cobalt, manganese, chromium and bauxite. It also possesses a long-term demographic dividend. The number of people aged between 15 and 64 will surpass that of Europe, Latin America and Oceania combined in 15 years. If we consider that in almost half of the African countries at least 50% of the population aged 25 and older have either an account at a financial institution or use a mobile money service, demography could be leveraged once legal frameworks are strengthened and financial and technological infrastructure deepen. This would create a more stable environment for investors and reinforce their confidence, with enhanced fiscal position, capillary logistics and wider financial inclusion as desirable outcomes.
• Against a backdrop of geo-strategic challenges, investors, insurers and pension funds have a vital role to play to attract the financial means necessary for Africa to develop its economy further. A thriving insurance sector can close protection gaps and help to reduce the "African premium" for the cost of debt and foster a conducive environment for infrastructure development.

The comprehensive report for you here.

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What to Watch this week:

• Fasten your bond belts. Global yields moved close to pre-financial-crisis highs in September on the expectation of higher-for-longer central bank policy rates. The ascent of real yields has reignited debt-sustainability concerns in both Europe and the US. Also, speedy interest-rate increases are testing the financial system once again.
• Italian spreads testing the ECB again? Italian yields also jumped, driving spreads to 200bps and thus questioning the Italian (and European) triple shield against a repeat of 2012: (i) the ECB’s TPI, (ii) the fiscal credibility of the 2024 budget and (iii) the retail strategy to diversify the investor base (in that order).
• CBAM’s Happy (?) Birthday. Designed to provide a level playing field for EU producers amid rising carbon prices, the Carbon Border Adjustment Mechanism (CBAM) requires overseas firms that previously benefited from laxer environmental standards to shoulder a similar carbon cost as their EU counterparts. Troubles remain.
• India is open for (bond) business. The inclusion of India in J.P. Morgan’s main EM local currency sovereign bond indexes is expected to bring significant passive and active inflows, lower corporate borrowing costs, and to signals India’s renewed commitment to openness to foreign investors.
• Celebrating Claudia Goldin’s Nobel with a call to action! In honor of this year’s Nobel laureate in economics Claudia Goldin, we calculated that women in Australia, France, Germany, Italy, Spain, UK, and the US continue to give away EUR950bn of excess unpaid labor every year. Remember: Increasing remote work should not distract from reforming public provision and quality of childcare services, as well as tax regimes for second earners, are essential to increase the number of women in the workforce.

The complete stories for you here.