Sub Saharan Africa Economic Outlook January 2019

Sub-Saharan Africa: Sub-Saharan Africa

January 20, 2019

Q3 2018 upturn strengthens on continued broad-based gains

Comprehensive third-quarter data revealed a strengthening recovery of the Sub-Saharan African (SSA) economy as the region’s heavyweights shook off a midyear malaise. Regional growth picked up to 3.1% year-on-year (Q2: +2.6% year-on-year), improving on earlier estimates (previously reported: +2.9% year-on-year). Aside from broad-based gains in Nigeria and South Africa—by far the region’s largest two economies—and an improved but still dire economic calamity in Angola, upbeat growth was recorded across Ghana, Kenya and a handful of other economies. Available data for the fourth quarter, meanwhile, suggests that upturns in Angola and South Africa might have been short-lived, with FocusEconomics projecting year-end regional growth of 2.8%.

By-now familiar themes were present across third-quarter national accounts. In line with Nigeria and South Africa, Ghana and Kenya both experienced broad-based growth in the third quarter as buoyant external demand drove mining and quarrying activity in the industrial sector and as favorable growing conditions helped deliver bumper agricultural-sector gains. Across the border in Cote d’Ivoire, however, agricultural yields were hit as cocoa harvests contended with a bout of swollen-shoot disease. Despite the region’s ongoing transition towards consumption-led growth, a number of services sectors performed more modestly although continued to benefit from decent wage growth nonetheless. Recession-mired Angola, meanwhile, fared better through September but economic activity continued to contract; despite a third-quarter rebound in manufacturing, the mismanaged but all-important oil and gas sector continued to straitjacket the economy.

Looking ahead, regional politics are set for a shake-up this year and have already begun undermining economic sentiment. Late last year, the Democratic Republic of Congo (DRC) went to the polls to elect long-time ruler Joseph Kabila’s successor where allegations of vote rigging have since sparked a political crisis. The winner, Felix Tshisekedi, clinched an unlikely victory against the more popular opposition ticket, runner-up Martin Fayulu, sparking allegations of voting irregularities. International calls for a recount, which have so far been rebuffed, continue to grow louder over fears that Kabila’s clout played a role in Tshisekedi’s victory. With status quo politics threatening to remain in the driver’s seat through the forecast horizon, investor confidence is on the rocks.

Nigerians, meanwhile, will head to the polls on 16 February in what is expected be a tight presidential race between incumbent Muhammadu Buhari of the center-left All Progressives Congress (APC) and the center-right People’s Democratic Party (PDP) candidate, Atiku Abubakar, a billionaire businessman and former vice-president. Although, at first glance, the two seem to share much in common, a victory for Abubakar, who has promised to deregulate the foreign exchange market and upend the Central Bank’s governing body, could fundamentally shift monetary policy in Africa’s giant. Moreover, his planned privatization of the state-owned oil company could eventually attract a flurry of investment.

Economic recovery set to strengthen despite more challenging backdrop

Despite what looks to have been a breather in the fourth quarter of last year, the region’s recovery is expected to gather momentum this year—and particularly in the region’s heavyweights Angola, Nigeria and South Africa. Resilient external demand and, in turn, firm commodity prices are expected to fuel stronger economic activity across export-driven economies, while upbeat public- and private-led investment is seen propelling growth in many of the region’s smaller economies. The political backdrop, however, presents acute challenges as policy uncertainty and the prospect of fiscal slippage drives the regional narrative ahead of elections in Nigeria and South Africa and amid the yet-unseen transition of power in the DRC. Meanwhile, the global economy poses a number of downside risks including a pullback in trade and abruptly higher borrowing costs. Moreover, capital flight remains a major concern for those economies running current-account deficits.

Despite a solid third-quarter outturn, regional growth forecasts were lowered this publication. As such, regional growth is expected to have clocked in at 2.8% last year—held back by recession-hit Angola. Moreover, regional growth is seen picking up to 3.5% this year, which is down 0.1 percentage points from last month’s forecast, before accelerating further to 3.8% in 2020.

This month, Angola and Nigeria were among five of the region’s economies to have their 2019 growth forecasts lowered. Meanwhile, six economies, including major-player South Africa, had their growth forecasts left intact. On the other hand, six economies had their growth forecasts raised, including Ghana and Kenya. Ethiopia and Rwanda will lead the pack this year, with both seen growing at over 7.5%. In contrast, Angola and South Africa are seen trailing significantly as the only economies growing below 2.0%.

See the Full FocusEconomics Sub-Saharan Africa Report

NIGERIA | Nigeria heads to the polls amid limping recovery

Available data suggests economic activity remained relatively weak in the final quarter of 2018, following a modest showing in Q3 which was propped up by higher oil production. The PMI edged down in December and brought the Q4 average below that of Q3’s, signaling waning momentum of business activity towards the end of the year. On the demand side, multi-year high unemployment in Q3 coupled with still-elevated inflationary pressures through year-end likely weighed on private consumption in Q4. This comes against the backdrop of the upcoming presidential election of 16 February which is set to be a two-horse race between incumbent President Muhammadu Buhari and Atiku Abubakar, a businessman and former vice-president. Although both candidates take a similar stance on certain economic issues, they differ sharply over the management of the foreign exchange system and the vital oil industry. Thus, were Abubakar to win, the possibility arises that economic policy is reoriented going forward

The economy is expected to gain traction this year, on the back of stronger household consumption and public spending. The recent slide in oil prices and announced OPEC oil output cuts pose downside risks going forward, however. Political uncertainty over the outcome of next month’s general election also clouds the outlook. FocusEconomics panelists see GDP increasing 2.4% in 2019, down 0.1 percentage points from last month’s estimate, and 2.9% in 2020.            

SOUTH AFRICA | Not out of the woods yet as credit-rating reviews loom

Third-quarter growth topped analysts’ estimates, blunting a short-lived technical recession amid the build-up of inventories. In demand-side terms, household spending staged a comeback on the heels of last year’s value-added tax hike. Fixed investment languished, however, as debt-burdened firms held off amid heightened economic uncertainty. Moreover, net exports restrained growth owing to a pick-up in imports. A supply-side look at the fourth quarter suggests the economic recovery persisted through the end of the year; manufacturing- and retail-sector activity has been picking up since October. On top of that, survey-based data through December hints at a slight improvement in economic sentiment. With little room to maneuver fiscally, Cyril Ramaphosa’s growth-supportive reforms continue to underpin economic prospects. However, they are expected to face hurdles over the coming months in the run-up to this year’s general election.

Higher real wages and Ramaphosa’s last-ditch fiscal stimulus are expected to lift economic sentiment ahead of this year’s elections, stoking household spending and fixed investment, respectively. As such, FocusEconomics analysts expect the economy to bounce back somewhat this year. Key downside risks remain, however. Of particular concern, a credit-rating downgrade by Moody’s would trigger large-scale capital outflows and undermine any short-term recovery. Moreover, a Chinese slowdown would bruise economic activity. Medium-term growth prospects are being held back by concerns over fiscal slippage and the inadequate pace of structural reforms. Analysts expect growth of 1.6% in 2019, unchanged from last month’s forecast, and 1.9% in 2020.

See the Full FocusEconomics Sub-Saharan Africa Report

KENYA | Growth seen firm through end-2018

The economy likely lost traction again in the final quarter of 2018 after expanding at a robust, albeit softening, pace in the third quarter on strong agricultural and hydro-powered electricity output. Rising inflation, a continued slowdown in remittance inflows and weaker credit growth likely weighed on private consumption in Q3. Entering the fourth quarter, a pick-up in remittances and an acceleration in credit in October likely stimulated greater household spending. Moreover, PMI readings for Q4 indicate private sector activity remained resilient. On the downside, gloomy corporate earnings and job cuts prompted the Kenya Revenue Authority to reduce its revenue target for the current fiscal year by 5.0%. In other news, a hotel and office complex in the capital came under attack from Al-Shabaab militants on 15 January; the latest in a wave of terrorist activity across the continent that threatens to undermine foreign investment and the tourism sector.

Growth is expected to remain strong in 2019, thanks to solid domestic demand. Private consumption should continue to expand at a healthy pace, buoyed by solid remittances inflows and a tight labor market, while upbeat business confidence should continue to support strong fixed investment growth. The continuation of the interest rate cap on commercial bank lending rates will likely curb the availability of credit, however, and hamper the government’s ability to secure additional financing from the IMF. FocusEconomics analysts project GDP growth of 5.9% in 2019, which is up 0.1 percentage points from last month’s forecast, and 5.7% in 2020.

ANGOLA | Still mired in recession in Q3

Preliminary national accounts data revealed that the economy remained stuck in recession in the third quarter of 2018, as GDP shrank 1.6% annually amid a broad-based deterioration in economic activity. The country’s all-important oil sector posted yet another contraction in Q3, while the other key sectors—including agriculture, trade, construction and the production of diamonds and other minerals—also shrunk in the quarter. Meanwhile, available data suggests dynamics remained disappointing in the fourth quarter of 2018. Oil production fell in December from the previous month which, coupled with plummeting global oil prices, signaled another deterioration in the country’s vital sector. In addition, inflationary pressures intensified slightly at the end of Q4, following a prolonged downward trend, likely taking a bite out of private consumption growth.

The economy is expected to emerge from recession this year, propped up by more robust domestic demand, although analysts continue to downgrade the strength of the recovery. Gradually easing inflationary pressures should bolster higher household consumption, while ongoing economic reforms, reinforced by support from the IMF, are expected to bolster investment activity growth this year. Considering Angola’s chronic dependence on the oil sector, lower-than-projected global oil prices and lower-than-expected oil production remain the key downside risks to the outlook. FocusEconomics panelists see GDP expanding 1.3% in 2019, which is down 0.6 percentage points from last month’s forecast, and 2.4% in 2020.

MONETARY SECTOR | Inflation jumps at end-Q4 

FocusEconomics’ comprehensive estimate revealed that inflation ticked up at the end of last year. Regional inflation clocked in at 8.6% in December amid rampant pressures in Zimbabwe and despite lower fuel costs regionwide (November: 8.3%). Inflation has been edging higher across the region’s heavyweights in recent months while, notably, it has been sitting comfortably in single-digit territory in the DRC after spiking last year. More broadly, bumper agricultural yields across the region have been keeping food prices in check.

Monetary policy in the region’s most-industrialized economy took a dovish turn in recent weeks as inflation expectations in South Africa began to ebb in light of lower fuel costs and less financial-sector volatility. With that, the South African Reserve Bank (SARB) stayed put on 17 January and revised its number of planned rate hikes over the next few years to one 25-basis-point hike from three previously in a bid to combat stagnant growth prospects.

All told, annual average inflation landed at 9.1% last year. This year, FocusEconomics expects regional inflation to moderate and average 8.6%, which is unchanged from last month’s forecast. Inflation is seen easing to 8.2% in 2020.

See the Full FocusEconomics Sub-Saharan Africa Report


Angela Bouzanis

Senior Economist 

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