This week we look more closely at the outlook for Sub-Saharan Africa (SSA) in 2016. SSA (excluding Zimbabwe) has experienced uninterrupted growth over the last 15 years with an average growth of 6% for most economies.
Ritesh Anand Column
Following the collapse in commodity prices, growth in SSA has been somewhat muted, but remains positive at 4,4% this year, according to the World Bank. This is well above the recent World Bank projection for Zimbabwe of 2,8%, which I believe is somewhat optimistic given the impending drought and depressed global commodities price outlook.
The outlook for SSA’s two largest economies (Nigeria and South Africa) will remain depressed in the year, but I’m optimistic for some of the region’s smaller markets including, Kenya, Tanzania, Mozambique and Cote d’Ivoire. Nigeria’s oil-focused economy has been battered by low crude prices and the government’s bungled response has only made the situation worse. A full-blown balance of payments crisis is now possible in Nigeria.
South Africa’s problems are more structural; the country suffers from ageing infrastructure, rising inflation and high unemployment levels currently at 25%. Potential growth is now firmly below 2%. But lasting challenges in Nigeria and South Africa should not distract from more positive stories elsewhere.
Growth in Kenya is accelerating as investment surges. Tanzania, Côte d’Ivoire and Mozambique will all probably see growth of above 7% next year. Even long-suffering Ghana looks set for a gradual economic recovery. Weak growth in the major economies means that regional growth may disappoint, but this figure hides huge variation across the continent.
South Africa narrowly avoided a technical recession in the third quarter of 2015, it’s likely that the country will slip into a recession in the first quarter of 2016. The country’s economic prospects have seldom seemed so grim. The poor performance of the mining and manufacturing sectors has left the economy overly dependent on retail sales to support growth. With unemployment stuck at around 25%, debt elevated and consumer confidence still near multi-year lows, I doubt that this is sustainable. I expect that the Reserve Bank of South Africa will tighten policy further in 2016 as food and energy prices push up inflation and the United States’ Federal Reserve tightening means the rand will remain under pressure in 2016. A period of prolonged slow growth will put more pressure on South Africa’s credit rating, which was recently downgraded by international ratings agency Fitch.
Nigeria’s economy will continue to struggle in 2016 as a result of low oil prices and the government’s increasingly unorthodox policy making. Low oil prices have led to strains in the balance of payments and pressure on the naira. The long-delayed appointment of a finance minister means that Nigeria is unlikely to have a 2016 budget until early next year. The new minister faces a serious challenge given that low oil prices have slashed revenues. All told, I expect that GDP growth will rise to just 3,2% in 2016, a much less optimistic view than that held by the Bloomberg consensus. I believe that, without structural reforms, growth in Nigeria will remain below 5% over the coming years.
Kenya will be one of the few bright spots in SSA this year where investment will continue to spur growth. Kenya has benefited from low oil prices, which caused the country’s trade deficit to narrow in late 2014 and early 2015. But surging capital imports and a struggling tourism industry have kept the current account deficit comparatively wide at 10% of GDP. I expect investment should continue to boost headline GDP growth.
The Kenyan government is — with Chinese help — investing in a series of large-scale transport projects, including a new port and an expanded railway system. The improvements to the country’s infrastructure will certainly help economic growth. Encouragingly, growth in Kenya is being driven by rising productivity rather than a short-term commodity boom.
Tanzania, Uganda and Rwanda will also benefit from an increase in investment especially in infrastructure. Uganda could be one of the fastest growing countries in Africa over the next few years on the back of an ambitious government infrastructure investment package.
The recent discovery of significant gas reserves off the coast of Zanzibar will provide a significant boost to GDP growth in the medium to long-term while rising consumer spending and significant capital expenditure will continue to drive growth in the short-term.
Mozambique has even more potential as a major exporter of gas than Tanzania. The government predicts that Mozambique could eventually become one of the world’s top five liquified natural gas exporters; which would create an Angolan-style economic boom in the 2020s.
Like Nigeria, Angola’s economy has been battered by low oil prices and I expect growth to remain anaemic over the medium-term. The Angolan government has responded to sliding oil revenues by significantly cutting spending.
Zambia is also experiencing a sharp trade shock as low copper prices and mine shutdowns pummel export earnings. Export earnings have declined by 50% year-on-year while the currency has tumbled forcing the government to invite an IMF team for talks. Structural power shortages and a potential drought is likely to depress growth further in 2016 and 2017.
Finally, growth is likely to slip further in Zimbabwe in 2016 given the impending drought and depressed commodity outlook. Zimbabwe’s trade deficit is likely to expand as export revenues fall sharply while imports remain stubbornly high.
While the World Bank expects GDP to grow by 2,8% on the back of infrastructural projects, I remain unconvinced and expect the economy to decline by 2-3% in 2016. It’s imperative that the re-engagement with the international community remains on track and is accelerated if Zimbabwe is to avert economic collapse.