Africa’s growth will improve off 2016 – the worst year for the continent in nearly 20 years.
- Africa’s growth will improve following 2016.
- Selected key economies will continue excelling.
Low growth was largely driven by external factors, particularly oil prices, which meant two of the largest three economies in Sub-Saharan African (SSA) i.e. Nigeria and Angola had to accept lower receipts for their exports.
As a result, both economies fell into recession, with Nigeria hit particularly hard, as the nation dealt not only with reduced terms of trade, but with lower production levels as a result of domestic insurgency.
South Africa’s growth in 2016 was only marginally positive (0.3%), while Angola’s growth for the year is likely to be flat. All three of these economies are expected to grow more strongly in the year ahead, although each one is dependent on a combination of global commodity price recovery, and structural economic reform.
At the other end of the spectrum, Cote d’Ivoire remains one of the fastest growing countries globally, although once again, highly dependent on commodity (cocoa) prices, and its ability to manage internal conflict. Staying in West Africa, Ghana’s prospects are also looking increasingly promising, with a newly elected administration promising to manage the public purse more prudently.
East Africa remains the most buoyant of all, with the four key economies (Kenya, Ethiopia, Tanzania, and Uganda) all poised for growth of 6%+ for the rest of the decade.
For most of the sub-continent, inflation has peaked and is declining, allowing the space for central banks to ease interest rates. This in itself will add stimulus to economic growth, and should interest rates at the very least remain stable, consumer disposable income will support even stronger growth through 2017.
However, there are a number of risks that need to be managed. Countries with high and rising twin fiscal and trade deficits remain at risk of currency devaluation. This becomes all the more evident where national debt levels are either rising too rapidly or are already at high levels.
Mozambique is the most notable example, although this has not impacted its growth outlook.
Commodity prices are also key to growth assumptions. Oil prices have fallen back to US$50 after trading at US$55 in the first two months of 2017. Price moves will depend on OPEC’s ability to get member countries to stick to agree to production levels. China remains critical to commodity prices more broadly, as its recent slowdown has already illustrated. Given these unknowns, policy certainty and economic reform are critical to stimulating growth and reducing the impact of exogenous influences.
By 2030 Africa remains on track to be a US$3t economy. To achieve that will require accelerating diversification initiatives and thereby boosting resilience to external shocks.