… As negative outlook for sub-Saharan Africa remains
By Hilary Mare
THE global mining industry’s value and production growth outlook for 2017 will gradually improve over the course of the year as metal prices are likely to trend higher over the coming quarters, according to Fitch Group research arm BMI.
Mining has arguably been the biggest contributor to Namibia’s economy in terms of revenue. It accounts for around 25 percent of the country’s income. Its contribution to the gross domestic product has undisputedly positioned the industry as one of the largest economic sectors of the country.
“We maintain a positive view toward metal prices over a 12-month horizon, boosted by improving supply and demand fundamentals, as well as rising global inflation,” BMI said.
The firm emphasised, however, that the industry’s recovery would be slow and that it would face challenges in key mining markets owing to political flashpoints and regulatory risks.
Moreover, the broad-based 2016 rally in commodity prices means that BMI is sceptical that spot prices will be significantly above end-2016 levels by the end of 2017.
The firm highlighted two factors that would prevent a more sustained rise in prices.
“First, we expect the positive impact of stronger Chinese demand on global commodity prices to wane,” it said, explaining that, in 2016, stronger economic activity in China and associated commodities demand were central to the broad-based commodities-price rebound”.
Secondly, BMI believes the positive impact that US infrastructure stimulus will have on metal prices has already been priced in for 2017. However, the firm expects both the scale of President-elect Donald Trump’s touted infrastructure package and its impact on US metal imports to disappoint.
Meanwhile, BMI forecasts that the longer-term outlook for metal prices will remain stable rather than face any significant rebound, prompting a gradual recovery in mining industry value.
“We forecast the value of the global mining industry to return to modest growth in 2017, increasing by only 0.7 percent year-on-year, and to accelerate thereafter to 2020.”
An average growth rate of 13.5 percent between 2017 and 2020 will represent a significant improvement from the previous four-year decline of 9.4 percent, though the growth rate remains well below historical highs of multiyear double-digit growth rates.
In general, BMI forecasts that most mining companies will see better performance and financials over the coming years as most commodity prices have now slumped.
On the other hand however Fitch last week forecasted a rise in aggregate sub-Saharan African growth from 0.9 percent in 2016, weighed down by poor performance in Angola, Nigeria and South Africa, to 2.9 percent in 2017.
“While commodity prices have regained some ground, many commodity exporters in the region are still running substantial budget and current account deficits and are facing financing strains and pressures on foreign-exchange reserves at current levels. They face further fiscal consolidation in 2017 to narrow twin deficits and stabilise their economies,” the agency said.
Fitch noted that government debt ratios would continue an upward trend across most of the region, adding that heavy spending on infrastructure, weak public financial management and the decline in commodity prices would remain important drivers of elevated budget deficits, and that political risks would also remain an important rating factor in the region.
“Instability in government will affect the ability to tackle economic policy challenges and, more seriously, social and political challenges [facing] government,” it said.
“This will put pressure on expenditure and affect the confidence of foreign investors in a number of sovereigns, such as Ethiopia, where unrest has led to the imposition of a state of emergency, or Kenya, where tensions have risen ahead of elections in 2017,” Fitch concluded.
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