Long Term Threat To Current Account As Exports Stagnate

BMI View: Mali's security crisis has not dampened surging export growth, and we estimate that the country's current account deficit narrowed from 5.7% of GDP in 2011 to 4.0% in 2012. We believe it will improve slightly to 3.9% of GDP in 2013, but that over the longer term the deficit will rise as growth in key export industries slows. This forecast is highly dependent on Mali's southern provinces remaining under stable government control, which we believe is likely.

Despite dividing the country in half and displacing hundreds of thousands of people, the political and security crisis in Mali has had a relatively minor impact on the country ' s economy. While BMI now expects that Mali's economy contracted by 2.5% in 2012, we believe that growth in 2013 will reach 3.1% in the face of the ongoing crisis . The reason for this is geographic; rebel co nquests in Mali's arid north have not prevente d growth in key sectors in the s outh.

This view is supported by our updated view of Mali ' s current account deficit. W e estimate that exports grew by 15.8% in 2012 on the back of an exceptional cotton harvest and the opening of a new gold mine. Despite aid cancellation and the implosion of the tourist industry , we believe that the current account narrowed from 5.7% of GDP in 2011 to 4 .0 % of GDP in 2012 . We predict the deficit will remain relatively constant in 2013, narrowing slightly to 3.9%. Over the longer term , however, BMI expects the deficit to widen as mining growth slows and cotton production returns to the historical average. This view is highly dependent on political stability in the south; a wider conflict would cause us to re-evaluate our forecasts.

Heading Down Again
Mali - Current Account Components (US$bn) & Deficit (% Of GDP, RHS)

Mali ' s current account deficit has been shrinking in recent years, and we expect this trend to continue in 2012 and 2013. Exports increased by an annual average of 15.7% in the ten years to 2012, outpacing import growth. Net transfers rose by 241% in the decade to 2011 , though they fell as aid was suspended in 2012 . Import growth has also been strong, supported by demand for capital goods for mine construction and a dependence on imported oil (which BMI predicts will represent 15.5% of imports in 2013). BMI estimates that exports increased by 15.8% in 2012 and will grow by a further 12.4% in 2013 to reach US$3.5bn.

All In The Same Basket
Mali - 2012 Exports By Sector

This impressive export growth has been almost entirely supported by production increases in the gold sector. BMI has long argued that the country's mining sector would remain largely unaffected by the rebel takeover of northern Mali. (see 10 May 'Gold Untarnished by Security Crisis' on our online service). The BMI Mining Team 's production forecasts support this view, estimating that Mali's gold output grew by 5.8% in 2012 as a new mine came online, and that export s of the valuable metal will reach 1.43mn oz in 2013.

Playing a supporting rol e in Mali's rising exports has been the country's cotton industry. While representing a much smaller share of exports, the sector employs the majority of the working population. A combination of higher investment, positive climate conditions, and rising global prices have boosted export values in recent years. BMI forecasts that cotton export earnings will increase from US$300mn in 2012 to US$384mn in 2013, an impressive rise compared to US$120mn in 2009.

After 2013, however, BMI believes that slower growth in both of Mali ' s key industries will cause imports to grow faster than exports, slowly widening the current account deficit. By the end of our 2012-2017 forecast period the deficit will widen to 10.5% of GDP.

Mali ' s gold production was boosted in 2012 by the opening of a new mine, and has been buoyed in recent years by surging gold prices. Between 2013 and 2017, however, BMI ' s mining team predicts that annual production growth will average only 1.9%. This, combined, with stable gold prices of around US$1 , 775/oz, will prevent gold export values from rising much further. While new discoveries pose an upside risk to this forecast, we believe that the sector ' s fastest growth is behind it.

Slowing Down
Mali - & Cotton Production (mn lbs) (LHS) & Gold Production (mn oz) (RHS)

BMI also believes that the cotton sector is likely to see slower growth over the coming years. A strong harvest and elevated prices boosted export values by 38.9% in 2012, but we doubt this growth is sustainable. While BMI 's commodity team predicts that cotton price will remain stable around US$1.00/lb over the coming years, we believe that annual production growth will trend back towards the 10-year average of 4.2%. With climate change threatening rain patterns and government funding likely to focus on military operations in 2013, it is possible that this forecast is overly optimistic.

Risks To Outlook

The key risk to this view is the spread of instability from Mali ' s sparsely populous north to its southern economic heartland. While have always viewed this as unlikely, it remains a possibility. As mentioned above our view of relatively stagnant gold production would be revised if new discoveries were made. BMI highlights cotton production, which is highly vulnerable to seasonal climate variation, as posing a risk to our long-term forecasts.

This article is tagged to:
Sector: Country Risk, Agribusiness, Mining
Geography: Mali, Mali, Mali, Mali