Lion Economies

What Are the Lion Economies?

Lion economies are a nickname for Africa's growing economies, which had a collective GDP of $2.2 trillion in 2017, slightly larger than the economy of Brazil. These economies often include:

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.

Understanding Lion Economies

The International Monetary Fund (IMF) estimates that the lion economies of sub-Saharan Africa will grow by 3.4% in 2018 and by 3.7% percent in 2019, well off their high single-digit growth rates earlier in the decade and 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 0.8% in 2017 after suffering a recession in 2016. It is projected to grow at about 2.0% 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. 

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).