What Are the Lion Economies?
Lion economies are a nickname for Africa's growing economies, which had a collective Gross Domestic Product (GDP) of roughly $1 trillion in 2021. These economies often include:
- South Africa
Key sectors contributing to Africa's collective GDP growth include natural resources, retail, agriculture, finance, transportation, and telecommunications. Improvements in political stability and economic reforms have aided growth but globalization, previously a boon to the continent, has recently had a negative impact.
- The "lion economies" refers to several booming economies on the African continent.
- Still, many countries in Africa remain poor and underdeveloped.
- Lion economies are a nickname for Africa's growing economies, which had a collective Gross Domestic Product (GDP) of roughly $1 trillion in 2021.
- Investors seeking above-average growth potential may look to the lions, with several ETFs and market indices tracking assets in those economies.
- China has made significant investments in Africa over the past few decades.
Understanding Lion Economies
The International Monetary Fund (IMF) estimates that the lion economies of sub-Saharan Africa will grow by 3.8% in 2022 and 4% in 2023, better than they fared in previous decades but still well below the expected growth rates of emerging market economies overall.
Among the countries with the highest expected growth rates for the next two years are Ethiopia, Ghana, Tanzania, Uganda, and Kenya, according to the IMF—though different investors and think tanks list different countries as "lions."
Nigeria, Africa’s largest economy with a GDP of $376 billion, grew only 1.5% in 2021 after suffering a recession in 2016 and the lingering effects of COVID-19 in the years following. It is projected to grow at about 2.9% a year over the next two years, well off forecasts of 7% annual growth through 2030 by McKinsey & Co. just five years ago.
The use of the moniker "lion economies" is analogous to the "tiger economies" used to describe several booming economies in Southeast Asia. The Asian tiger economies typically include Singapore, Hong Kong, South Korea, and Taiwan.
Headwinds for Lion Economies
Nigeria, the largest oil producer on the African continent, is the most glaring example of how the lion economies are struggling to avoid financial crises. Once seen as one of the more dynamic areas of economic growth in developing markets, which include both emerging and frontier economies, sub-Saharan Africa has been hurt recently by falling commodity prices, a slowing Chinese economy, and the rising cost of external debt.
Commodity exports are the lifeblood of African countries and have yet to recover from the oil price shocks of 2015 and 2016 that signaled the end of the commodity super-cycle. The commodity price slump has caused African currencies to weaken, inflation to rise, equity markets to decline and bond spreads to widen, raising the cost of borrowing and reducing some countries’ access to the sovereign bond market. A slowing Chinese economy has caused much of this commodity weakness as its demand for primary goods such as industrial metals mined in Africa has slackened.
African economies experienced the worst recession recorded in modern times due to the fallout from the COVID-19 pandemic, falling back to 2013 levels of economic output in the space of just a few months. Africa, too, experienced a relatively sluggish recovery as low vaccination rates and unequal access to finance got in the way.
Investing in the Lions
Given the economic malaise overhanging many of the lion economies, Africa has moved from a growth investment to a turnaround story.
Investors seeking exposure to the lion economies have just one continent-wide ETF to consider, the GDP-weighted Market Vectors Africa ETF (AFK) invests in South Africa (29%), Morocco (12%), Kenya (8%), Nigeria (8%) and Egypt (8%), with the remainder in developed and emerging market companies operating in Africa. The largest African ETF is the iShares MSCI South Africa ETF (EZA), while smaller ETFs target Nigeria (NGE) and Egypt (EGPT).
China in Africa
While much of the West had ignored Africa as an important economic center, China has committed to establishing a strong foothold there. Since the 1970s and accelerating through the 2000s, China has been investing in Africa, often through direct investment in infrastructure and energy projects. Indeed, over the past two decades, the Chinese have built more than 6,250 miles of roads and 3,700 miles of railroads across the continent. That is roughly 20% of all of Africa's highways and 10% of its railways.
For China, they benefit from establishing trade relations to import raw materials, and also help to grow a larger consumer class to purchase Chinese-made goods. At the same time, African economies become dependent on Chinese imports and financing while owing a growing amount of debt to China. China accounted for nearly one-fifth of Africa’s overall international trade in 2020. China was also the source of $153 billion in cumulative loans to African countries between 2000 and 2019.
What Country in Africa Has the Largest Economy?
Nigeria is Africa's largest and most-developed economy, followed by South Africa and then Egypt.
What Is the Poorest Country in Africa?
The poorest countries in Africa, in terms of per-capita income, are Burundi and Somalia.
What Is the Safest Country in Africa?
The safest country in Africa as measured by the Global Peace Index (GPI) is Mauritius (which is also the 28th-safest country in the world). Mauritius is a multicultural island nation that is family-friendly and secure. Mauritius is a haven for tourists. The second-safest country in Africa is Ghana.