Mala Patel

Lars Christensen discusses commodity prices in Africa ahead of #AHIF16

Lars Christensen, founder and owner of Markets and Money Advisory and a Senior Fellow at London’s Adam Smith Institute, shares his insights into the opportunities and risks in the midst of economic turbulence in Africa. At AHIF in Rwanda, Lars will discuss current issues on the economic cycle, performance of commodities, oil prices, currency risk and diversifying economies and what they key drivers are of economic growth moving forward.
Ahead of the conference, we asked Lars his thoughts on the impact of the drop in commodities prices on the market, the impact of a slowing African consumer consumption and his thoughts on the opportunities that remain in Africa for investment and growth:

What is the impact of the drop in commodities prices on the market?

The drop in commodity prices have hit most African commodity exporting nations hard. Furthermore, policy makers in these nations are facing a serious dilemma – should they allow their currencies to weaken and there by soften the blow from lower commodity, but at the same time accept higher inflation as a consequence of weaker currencies or should they fight the pressures for weaker currencies by hiking interest rates and intervening in the currency markets.
Most countries initially were fighting the depreciation pressures to curb inflation, but most have also eventually had to give up these policies has strong monetary tightening have had significantly negative impact on the economies of the commodity exporting nations.

What is the impact of African consumer consumption starting to slow down?

We lower growth – and in many African nations also higher inflation – private consumption has taken a hit. This is a natural consequence of the hit, but it would be wrong to assume that lower consumption growth will be permanent.

How real is the opportunity?

There surely remain major opportunities in Africa and in fact to some extent the drop in commodity prices should be celebrate has it necessitate growth based on economic reforms and development rather than on “windfall gains” from higher commodity prices.  Since the early 1990s we have seen major and important economic and political reforms across the African continent and institutions are today significantly stronger, more transparent and more democratic than in 1990. This will continue to support growth in Africa.  Furthermore, the demographic outlook remains very positive in a number of Africa countries, which also provide great opportunities.

Is the African dream still alive?

While the “African dream” clearly has been dented by lower commodity prices, lower Chinese growth and the global financial crisis there is good reason to expect fairly strong growth in Africa in the next couple of decades. Africa’s catch-up potential is enormous so it is far too early to kill the African dream.

Is international investment into Africa starting to slow down?

International investment into Africa certainly has been hit by lower commodity prices and a more challenging global financial environment certainly is also having a negative impact. The most important challenge, however, is the structural slowdown in Chinese growth and one therefore should expect Chinese investments into Africa to continue to slow. As consequence economic and institutional reforms are more important than ever to attract foreign investors into the continent.

This interview was conducted by the team at AHIF in Rwanda