Economic Snapshot of Sub-Saharan Africa
August 23, 2017
Political uncertainty threatens growth momentum Q1 growth estimate revised down due to weak performance in Kenya
Ongoing political uncertainties are dominating the narrative in the economy of Sub-Saharan Africa (SSA). In major-player South Africa, President Jacob Zuma narrowly survived a motion of no confidence in August. Zuma and his allies have been at the center of a number of corruption allegations, which have sparked large protests and created deep divisions in his party, the ANC. These controversies are taking a toll on the country’s economic performance and are paralyzing policy making in South Africa. The scandals have hit confidence in the economy, sparked volatility in the rand and the uncertainty is having an impact on investment in the economy.
Kenya is also feeling the economic heat from a fiery political situation. A fiercely-contested election on 8 August sparked fears of an outbreak of violence similar to the events that occurred during a past vote that led to temporary disruptions in economic activity. While the situation has calmed down somewhat after incumbent President Uhuru Kenyatta was declared the winner, opposition leader Raila Odinga’s failure to accept the results is creating political noise in the economy. Meanwhile, the economy needs attention after growth slowed notably in the first quarter largely due to a severe drought and a number of daunting challenges need to be addressed including improving the labor market and putting government finances on a sustainable path.
Elsewhere in the region, the situation in Nigeria remains precarious as communities in the oil-rich Niger Delta threatened to pull out of peace talks unless their demands are met. A return to violence would likely hurt the all-important oil sector since militants target oil installations. Meanwhile, Angola will vote in a Presidential election on 23 August in the midst of an economic crisis.
The underlying story in the region is that of a slow economic turnaround after an abysmal 2016. According to an estimate compiled by FocusEconomics, regional GDP increased 2.0% annually in Q1, a strong acceleration from Q4 2016’s 1.4% expansion. While the GDP result is positive, growth still remains well below the recent highs seen in 2014 and political jitters are preventing a sharper acceleration. In Q2, the panel expects growth to have picked up modestly to 2.3%.
Prospects held steady after three consecutive downgrades
FocusEconomics analysts left their forecasts for Sub-Saharan Africa unchanged this month, although a number of countries’ outlooks were downgraded in the face of weak incoming data and turbulent political scenes. Regional GDP is seen expanding 2.5% in 2017, unchanged from last month’s estimate. In 2018, growth is seen gaining pace with GDP expected to increase 3.4%.
Projections for three economies were left unchanged, while cuts were made to the forecasts for 8 of the region’s 13 economies. Lower growth prospects were seen for major-players Kenya, Nigeria and South Africa. Ghana and Mozambique were the only economies to see higher growth projections.
Cote d’Ivoire and Ethiopia are expected to be the fastest-growing economies this year, both expanding 6.7%. On the flip side, the regional heavyweights will be the poorest performers with South Africa expected to grow a weak 0.6% in 2017, followed by Nigeria with a 1.2% expansion.
NIGERIA | Fragile peace in limbo
SOUTH AFRICA | Political woes weigh on activity
President Jacob Zuma narrowly survived another no-confidence vote on 8 August despite having introduced secret voting in the legislative body for the first time ever. The victory, although important, is short-lived and shows how support for Zuma’s battered image continues to erode due to multiple scandals involving graft and mismanagement. The ultimate test for the embattled president, however, is the December ANC convention where the party will choose a new leader for the 2019 presidential elections. Furthermore, Zuma’s persistent political debacles are causing collateral damage in the economy. South Africa entered a technical recession in Q1 and an uncertain political landscape is keeping investment at bay. Muted investor appetite bodes badly for the economy since it is crucial to rekindle growth as the latest stream of data has been bleak. The unemployment rate was 27.2% in Q2, manufacturing output was stagnant in June and survey-based data was disappointing at the outset of Q3.
South Africa’s growth rate is expected to recover marginally from last year’s seven-year low although growth is expected to remain muted and subject to more downward revisions. The weak recovery is dependent on higher prices for the country’s key export commodities and higher agricultural output following 2016’s disastrous harvest. Panelists participating in the FocusEconomics Consensus Forecast project that the economy will grow 0.6% in 2017, which is down 0.1 percentage points from last month’s forecast, and 1.4% in 2018.
ANGOLA | MPLA party expected to win presidential vote, easing investor concerns
The country will head to the polls on 23 August to elect a new president amidst the backdrop of a still-sickly economy. Although prices of the country’s Cabinda oil inched up above USD 50 per barrel in late July, they have since dipped somewhat on news that OPEC members’ compliance with production cuts fell last month. This doesn’t bode well for the country’s fiscal position, as oil prices are far too low to balance the books. Although the incumbent MPLA party, with Defense Minister João Lourenço as its candidate, is likely to come out on top in the presidential elections, its popularity has been hit by the economic slowdown and corruption allegations. The opposition UNITA and CASA-CE parties are poised to benefit as a result. An eventual victory for Joao Lourenço is unlikely to signal a significant shift in policy making, with current President Eduardo dos Santos still wielding power from behind the scenes as leader of the MPLA party.
Growth will be measly this year due to low business confidence and a non-oil sector still hobbled by limited access to foreign exchange and high inflation. Looking further ahead, a moderate recovery in the oil sector should raise growth slightly. Analysts expect GDP to expand 1.5% in 2017, down 0.1 percentage points from last month’s forecast, and 2.5% in 2018.
KENYA | Costly elections add to economic griefs
President Uhuru Kenyatta secured a second term in office after a fierce contest on 8 August that was the most expensive presidential election in the country’s history and among the most costly in the world on a per capita basis. While markets reacted positively to Kenyatta’s re-election, and assertions by the opposition of foul play failed to garner any substantial support, there is little cause for celebration, as the Kenyan economy faces intensifying economic woes. An ongoing drought, which has ravaged the country since the beginning of the year, and social unrest around the election have adversely affected economic activity. Business conditions continued to deteriorate into the start of Q3, and the PMI came in below the 50-point threshold in July for the third consecutive month. An escalating debt burden and high unemployment have also thrust the economy into stormy waters. Political stability will be central to a brighter outlook for the economy. In the next two weeks, Kenya’s top court will rule on the credibility of the election results; it is widely expected to uphold Kenyatta’s victory.
While Kenyatta has proposed ambitious economic plans to stimulate growth, which rely primarily on an investment-led development model, the effects of such measures will take time to come into play. Thus, growth will remain subdued as agricultural output continues to be negatively impacted by the drought, and private activity takes time to recover. Our panelists expect GDP growth to slow to 4.9% in 2017, which is 0.1 percentage points down from last month’s forecast, before picking up to 5.5% in 2018.
INFLATION | Inflation falls to over one-year low in July
Inflation continued its downward trend in July, falling from June’s 12.7% to 12.3%, according to preliminary data compiled by FocusEconomics. Easing price pressures are creating some space for Central Banks in certain economies to ease monetary policies although inflation is still elevated in many countries. In recent weeks, the central banks of Angola, Ghana and South Africa have all loosened their policy stance.
Price pressures are seen remaining high this year and the analysts we surveyed this month expect regional inflation to average 12.5% in 2017, which is up 0.1 percentage points from last month’s forecast. Next year, inflationary pressures should begin to recede and inflation is projected to average 9.5%.
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Sub-Saharan Africa Economic News
September 19, 2017
Kenya’s economic ordeals continue to worsen following the Supreme Court’s decision on 1 September to nullify the results of the 8 August vote and hold an election re-run.
September 18, 2017
The average price of Angola’s Cabinda oil increased from USD 48.6 in July to USD 52.1 in August.
September 18, 2017
The Central Bank maintained the main policy rate at 10.00% at its 18 September monetary policy committee meeting, in line with market expectations.
September 15, 2017
In August, consumer prices rose 0.97% compared to the prior month, down from July’s 1.21% increase.
September 14, 2017
Consumer prices fell 0.2% in August compared to the prior month, contrasting July’s 0.7% rise.