2017 will mark a moderate recovery for Sub Saharan Africa
Following 2016’s dismal performance, economic growth in Sub-Saharan Africa is expected to rebound this year and
accelerate further in 2018. The economic experts polled by analysts in March forecast the region’s GDP to increase 2.9% this year— up 0.1 percentage points from last month’s Consensus—which is barely above population growth of 2.5%. The region’s economy is projected to accelerate to 3.7% in 2018.
This year’s growth recovery is, however, moderate because the region is still adjusting to low commodity prices. Although prices are projected to fully recover this year from the record lows registered at the beginning of 2016, the increase is expected to be gradual and price levels will remain well below those seen after the Global Financial Crisis.
Meanwhile, growth rates will continue to vary across the region. Although growth in South Africa and other major oil exporters is seen rebounding this year, it will be weaker compared to exporters of agricultural and mineral commodities. Meanwhile, more stable currencies, lower inflation, improved agricultural production, and large infrastructure programs should support economic activity in agricultural exporters, such as Cote d’Ivoire, Ethiopia, Kenya, and Tanzania, and mineral exporters such as Ghana.
The 2017 growth forecast for the region assumes that fiscal positions will gradually improve, but the terms of trade will remain weak, causing a drag on growth. Moreover, numerous external and internal risks continue to loom on the horizon. Among the external risks, uncertainty related to the economic policy of the new U.S. administration and elections in key European economies this year, particularly in France, have the potential to disrupt global financial markets and prompt higher borrowing costs in large African economies.
In addition, a potentially sharp slowdown in China could weigh on demand for commodities and undermine the recovery of prices. Among domestic risks, the primary one is policymakers across the region failing to adjust the economies to the new environment of low commodities prices and to continue with the economic reform agenda.
Cote d’Ivoire | Africa’s fastest-growing economy to remain on a steady growth path
Africa’s fastest-growing economy has had a rough start to 2017. Disgruntled soldiers claiming unpaid bonuses have continued to stage mutinies in February and they have spread to other cities. Civil servants have joined the protests and went on strike over delayed salary payments totaling around USD 400 million.
Mounting discontent in the army and the civil service is a testament to the country’s fragile institutional stability and shows that economic grievances exist despite strong GDP growth. While the protests are not foreseen descending into chaos or bloodshed, the economic ramifications could still be severe. Early reports suggest that confidence in the cocoa industry has weakened and firms are assessing whether to hold off on future investment plans, which could hamper government efforts to boost cocoa processing output in the country.
The economy is expected to remain on a steady growth path, though prolonged political uncertainty could stave off investment and dent growth. Panelists see the economy growing 7.9% in 2017, which is unchanged from last month’s forecast, and 7.6% in 2018.
Ethiopia | drought hampering growth
Ethiopia is facing a challenging start of the year as a worsening drought and prolonged political tensions are taking a toll on the economy. FDI inflows dropped 20% in the first six months of the current fiscal year as violent anti-government protests targeting foreign businesses have weakened confidence in the economy and deterred investment from coming into the country.
The ongoing drought is on track to become among the most severe in decades. Although international organizations have hailed government policies to counter the weather phenomenon, the drought is hampering growth in the all-important agricultural sector and increasing prospects of food insecurity.
On a brighter note, the country secured a USD 250 million loans from China that will finance large-scale infrastructure projects in the country. Going forward, a gradual improvement in weather conditions should provide some respite to the hard-hit agricultural sector. Analysts expect GDP to grow 7.3% in FY 2013, which is unchanged from last month’s forecast.
Tanzania | Economy set to remain solid
Tanzania’s economy is expected to have been one of Sub-Saharan Africa’s top performers last year. Economic activity in 2016 is likely to have expanded at a brisk pace on the back of subdued global oil prices and large-scale infrastructure investment, despite sluggish growth in agriculture as a result of unfavorable weather conditions.
However, one cause for concern is the government’s sizeable fiscal deficit, which could become more pressing going forward due to a projected fall in aid inflows and volatile global financial markets. In order to address this issue, in early February 2017, the government outlined preliminary budget plans, promising to improve revenue collection and moderate government spending increases.
Tanzania’s economic growth is set to remain solid going forward, underpinned by continuing strong infrastructure investment as part of the Second Five Year Development Plan and low oil import prices. Analysts expect GDP to expand by 7.2% in 2017 and 7.0% in 2018.
ANGOLA | Economic rebound this year will be supported by higher oil prices
Angola’s economy endured a miserable 2016, with newly released statistics showing a sharp contraction in the third quarter. Over last year as a whole, the economy was dragged down by low oil prices and a poor performance from the non-oil sector, as the industry was hobbled by the limited availability of foreign exchange for imported inputs.
The country is also still suffering from the scourge of high inflation, which remained cripplingly high in January 2017. In a recent staff visit to the country, the IMF did, however, praise the country’s non-oil primary fiscal consolidation to date and lowered its forecast for the country’s public debt ratio for 2017.
Nonetheless, the Fund also stressed the need for further fiscal tightening in order to put the public finances on a sustainable path, and to this end urged the introduction of a Value Added Tax. Angola’s economy will grow slightly this year thanks to improved terms of trade, although growth will remain meager as the price of the country’s oil exports is set to remain far below the average recorded in 2013 and 2014. Analysts expect GDP to grow 1.6% in 2017, up 0.1 percentage points from last month’s forecast. In 2018, they see the economy growing by 2.7%.
KENYA | 2016’s good economic performance will carry over into 2017
The Kenyan economy is expected to have performed strongly last year, despite Q3’s mild deceleration. Confidence remained high as all sectors of the economy had contributed to growth. However, the extended drought that has been affecting the country for some time intensified in the final months of last year, which may have resulted in a softer GDP outturn in Q4.
Nevertheless, the IMF highlighted the robustness of the Kenyan economy in late January 2017 in its first review of the SBA/ SCF program the country entered on May 2016. In its review, the Fund called on the government to scrap the interest rate cap introduced in September 2016. According to the IMF, the cap could shave several percentage points off GDP growth because it restricts the flow of credit, with SMEs being particularly affected.
The cap puts a ceiling on the interest rate commercial banks can charge clients and a floor on the interest they must pay to depositors. GDP growth is expected to remain broadly stable this year, supported by strong public investment and loose monetary policy. However, the outlook remains vulnerable to adverse weather conditions: the drought has continued into the first months of 2017.
Deteriorating financial conditions as a result of the interest rate cap also poses a risk to the country’s growth prospects. On balance, panelists see the economy growing 5.7% in 2017, which is down 0.1 percentage points from last month’s estimate. In 2018, the panel sees GDP growth at 5.9%.
INFLATION | Inflation shows signs of moderation at the start of 2017
Due to lower commodity prices, high current account deficits and falling capital inflows put pressure on international reserves and exchange rates across Sub-Saharan Africa last year. Consequently, inflation rose rapidly and, according to estimates, it averaged 12.5% in 2016, marking the highest level in eight years.
Although still high, inflation in the region is showing signs of moderation. Preliminary data showed that inflation edged down from 14.1% in December to 13.9% in January 2017, reflecting mainly a stabilization in regional exchange rates due to the gradual recovery in commodity prices seen at the end of 2016 and beginning of this year.
As commodity prices are expected to continue rising this year, exchange rates should stabilize or strengthen. Consequently, the analysts surveyed this month expect regional inflation to fall to an average rate of 11.6% in 2017, which is up 0.2 percentage points from the previous month’s estimate. Going forward, inflationary pressures should continue to recede and inflation is projected to average 9.3% in 2018.