Top two African economies to drag on sub-Saharan growth this year

Apr 19, 2019

Economic disruption from uneven currency trading in Nigeria and continued electricity shortages in South Africa are set to hold back overall growth across sub-Saharan Africa this year, a Reuters poll of economists found on Thursday.

Since commodity prices collapsed four years ago, the region has largely missed out on the global economic recovery, with growth failing to return to rates seen in previous years and set to remain subdued.

The survey, taken in the past week, shows Nigeria, Africa’s most populous country and largest economy, is expected to grow 2.4 percent this year and 2.8 percent next year. South Africa, the number two economy on the continent, will grow 1.3 percent this year and 1.7 percent in 2020.

The 2019 forecasts for the two countries, which together drive around half of the wider region’s growth, are both 0.1 percentage points lower compared to the last survey for Nigeria in January and March’s poll for South Africa.

“Tepid growth in South Africa is one reason why we expect that growth across Sub-Saharan Africa will remain disappointing in 2019,” said John Ashbourne, an economist at Capital Economics in London.

Creaking infrastructure at South Africa’s state power utility Eskom is taking longer to fix than economists previously thought. Rolling power cuts as it struggles with capacity shortages threaten to stymie President Cyril Ramaphosa’s efforts to boost investments and economic growth.

In Nigeria, multiple currency exchange rates designed to deal with dollar shortages following a slump in global oil prices in 2015 have undermined its economy.

Ashbourne said that keeping the naira artificially strong in 2015 prevented the economy from adjusting to lower oil prices.

“The foreign exchange system was improved in 2016, when the Bank partially devalued the official rate and launched a new, ‘Nafex’ rate, now used for 70-80 percent of transactions. But it remains complex and open to abuse,” he said.

South Africa’s economy expanded 0.8 percent last year while Nigeria’s economy grew 1.9 percent, its fastest pace since the recession two years earlier.

The economists surveyed expect South Africa’s key interest rate to remain at 6.75 percent until next year while a separate Reuters poll last month suggested Nigeria’s central bank will wait until May 2020 before cutting its main rate by 25 basis points to 13.75 percent.

Ghana is forecast to grow 6.2 percent, faster than January’s survey suggested. Some analysts expect the exporter of cocoa, gold and more recently oil to be the top performer this year.

Growth in East Africa’s biggest economy Kenya is seen slowing to 5.8 percent growth in 2019, compared to a government estimate of 6.1 percent for 2018. The World Bank is more cautious and has warned growth could slow to 5.7 percent due to dry weather patterns.

The International Monetary Fund last week cut its growth projection for sub-Saharan Africa this year to 3.5 percent from 3.8 percent in October. The World Bank is again more pessimistic, with a 2.8 percent forecast.

A separate survey this month showed yield-hungry investors will trade risky emerging market currencies cautiously against the dollar this year despite the Federal Reserve’s recent dovish stance, though there is still demand for them.

Standard Chartered Africa research head Razia Khan expects the Fed’s more dovish tilt to have a positive impact on sub-Saharan African economies in the months to June, allowing stronger domestic recoveries. However, she was cautious about the likelihood of new easing cycles.

 

- Reuters

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