Trends Across The Continent

2017 is likely to bring a cyclical recovery to sub-Saharan African economies, after a sluggish 2016, with estimated real GDP growth the weakest since the global financial crisis. However, those hoping for an immediate return to Africa’s more robust growth rates of the past will be disappointed.

Last year’s slowdown was largely down to below-average growth in South Africa and Nigeria, which together make up about half of sub-Saharan Africa’s GDP. This slowdown did not impact all countries uniformly.

South Africa

In South Africa, recovery after a severe drought last year, and improved electricity generation, should provide a modest lift to growth in 2017. But private sector confidence remains weak, and the country is at risk of losing its investment grade credit rating due to rising debt levels.

With little room to scale up public investment, recovery in South Africa will at best be tepid this year.

Nigeria

In Nigeria, following a likely contraction of GDP in 2016, it will not take much to see growth in 2017. But higher oil prices alone – we forecast an average of USD66/barrel in 2017 – are no panacea. Oil output and Nigeria’s ability to curb militancy in the Niger Delta will also matter, as will prospects in Nigeria’s non-oil economy, which makes up 92 per cent of GDP.

Activity in the non-oil sector has been sluggish, hampered by poor policy choices, in particular a poorly-functioning foreign exchange market. Despite several attempts at currency flexibility, Nigeria has never fully embraced a liberalized foreign exchange regime. Growth prospects this year will depend on how quickly unsustainable foreign exchange bottlenecks are resolved.

Trump Impact On Africa?

Africa is unlikely to be the direct target of any Trump-induced trade protectionism. But if trade tensions escalate, potentially weakening confidence in emerging markets, sub-Saharan African economies will feel the impact.

Over the last two decades, Africa’s trade with emerging markets has grown rapidly, at the expense of its trade with more developed partners. A slowdown in global trade would be a negative for trade-dependent emerging markets and could hurt their demand for sub-Saharan Africa’s export commodities.

“Faced with the threat of more disruptions to existing trade patterns, it is even more important that African economies start trading more among themselves”

To counter this, African economies will have to redouble efforts to boost intraregional trade. While unlikely to compensate for a global trade slowdown, this might soften the blow. Plans for an African Tripartite Free-Trade Area − encompassing 26 economies from the Common Market for Eastern and Southern Africa, the East African Community and the Southern African Development Community − should get underway in 2017.

Making the new trade partnership meaningful will be a challenge, but faced with the threat of more disruptions to existing trade patterns, it is even more important that African economies start trading more among themselves.

Ability To Borrow, Does Africa Have It?

In the years following the global financial crisis, African economies took advantage of cheaper financing to issue record amounts of traded external debt. However, borrowing internationally to invest in infrastructure is likely to become more expensive now, and governments will have to work harder to reassure lenders that they can repay existing debt.

African countries that are able to boost confidence by signing up for IMF and World Bank reforms will likely be rewarded with access to cheaper financing, whereas those that fail to adopt reforms could find their access to international capital markets more constrained.

In the years following the global financial crisis, African economies took advantage of cheaper financing to issue record amounts of traded external debt. However, borrowing internationally to invest in infrastructure is likely to become more expensive now, and governments will have to work harder to reassure lenders that they can repay existing debt.

African countries that are able to boost confidence by signing up for IMF and World Bank reforms will likely be rewarded with access to cheaper financing, whereas those that fail to adopt reforms could find their access to international capital markets more constrained.

What Next?

While Africa’s economies face more difficult external conditions in 2017, many of the policies that have contributed to weaker economic growth are home-grown, and can be addressed effectively.

The good news is that average regional growth should recover in 2017. But greater reform, and deeper debate on the domestic policy choices that have constrained recent growth, are required for more meaningful transformation.

About Razia Khan

Razia Khan is Chief Economist, Africa, with Standard Chartered. She joined the firm in 1997 and has risen to become a well-known commentator on African markets, advising the institutions clients on Africa strategy. This includes providing regular updates to African central banks, finance ministries and multilateral institutions. Khan holds a BSc (Hons) degree in economics and an MSc (Econ) in development, including monetary economics and international trade law, from the London School of Economics. She has been a member of the World Economic Forum’s Global Agenda Councils on Population and on Poverty and Development. She currently serves on the Advisory Board of the Royal Africa Society.

Photo Credit: A shopping center in South Africa/Cape Town Chronicles