Sub Saharan Africa Economic Outlook February 2017

SSA faces political and economic hurdles this year

Sub-Saharan Africa: SSA faces political and economic hurdles this year

January 25, 2017

Detailed GDP data show that growth in the Sub-Saharan Africa (SSA) region stagnated in the third quarter of 2016. The economy expanded only 1.1% on an annual basis, marking the slowest pace of expansion in nearly seven years. The region likely recorded the softest expansion in over two decades last year, with slowdowns in key economies such as Nigeria and South Africa accounting for most of the deceleration. 

Nigeria’s economy swung to contraction in 2016 as low oil prices, a sharp depreciation of the naira and depleting international reserves took a toll on economic activity. Moreover, the economy of South Africa remained stuck in the doldrums in 2016 on the back of weak external demand and numerous political problems at home. The country’s credit rating risks being downgraded to junk status, which would have particularly negative repercussions for the already weak investment environment. That said, the region was a tale of two distinct trajectories last year. Non commodity-dependent economies benefited from lower oil prices and countries such as Cote d’Ivoire, Ethiopia and Tanzania showed robust growth rates due to an improved business environment and strong infrastructure investments.

Head on over to our Sub-Saharan Africa page for more recent economic news on the region.

The region’s political agenda will be a busy one in 2017. Elections will be held later in the year in AngolaKenya and the Democratic Republic of Congo and there are escalating concerns of public unrest. Surveys conducted by local sources show that less than half of the African population consider the electoral systems as fair, which might translate into violent protests and a period of instability. Taking a closer look at particular countries, in Angola, the ruling MPLA party recently nominated João Lourenco, the current defense minister, as its new leader for when President Jose Eduardo dos Santos steps down. Lourenco is regarded as a member of the old guard, meaning a major change in policy direction is unlikely. Moreover, in Kenya, President Uhuru Muigai Kenyatta faces a bumpy road to election day as a strengthening coalition will likely capitalize on the current government’s shortcomings, including excessive corruption and a poor healthcare sector. 

2017 growth prospects improve marginally

The regional economy is expected to accelerate this year compared to last year’s dismal expansion. The main sources of growth will be a gradual improvement in global demand and a recovery in commodity prices. The deal between OPEC and non-OPEC members to cut oil output should ease the global supply glut, put upward pressure on oil prices and support the oil-exporting countries in the region.

Growth will nevertheless remain subdued on the back of economic and political challenges across the region. Possible violence and instability triggered by the upcoming elections, a lack of much-needed structural reforms and the repercussions of Trump’s expected protectionist policies are all factors that are weighing on the growth outlook. In this difficult climate, economic progress will depend to a significant extent on how fast governments can implement reforms aimed at promoting growth, reestablishing macroeconomic stability and enhancing trade links within the region.

This month, our panel of analysts upgraded SSA’s GDP forecast for 2017 following seven consecutive downgrades and they now expect economic growth of 2.9% next year, which is up 0.1 percentage points from last month’s estimate. In 2018, our panelists expect the economy to expand 3.8%.

The upgrade to the region’s 2017 economic outlook reflects upward revisions for Ethiopia and Ghana. On the other hand, the outlook was cut for Mozambique and Nigeria and it was left unchanged for the rest of the economies surveyed. Cote d’Ivoire will be this year’s fastest-growing economy, followed by Ethiopia and Tanzania. In contrast, South Africa is forecast to be the worst performer with an expansion rate of 1.2%. 

See the Full FocusEconomics Sub-Saharan Africa Report

NIGERIA | Challenging economic conditions will persist this year

The Nigerian economy is set to have closed 2016 with its worst economic performance in over 20 years as militant attacks on oil infrastructure, tight liquidity in the FX market and depressed private consumption dented growth. Although economic activity likely hit its trough in Q3, the latest leading indicators suggest that conditions remain extremely challenging. Government data show that the fiscal deficit widened in the first half of 2016 on lower oil earnings and non-oil tax revenues. This trend is set to worsen under the recently approved 2017 budget, which plans to increase expenditure, while the projection of a boost in oil output to 2.2 million barrels per day is considered unrealistic by critics. The bill envisages keeping the exchange rate unchanged at 305 NGN per USD, a rate far lower than the one traded on the parallel market, suggesting that pressure will continue mounting on the currency.

The economy is expected to rebound in 2017 after last year’s contraction. The recovery, however, is fragile and depends mostly upon policy action by the government. Analysts consider that a further devaluation of the naira is key to attract investment into the economy and support domestic demand. Panelists participating in the FocusEconomics Consensus Forecast project that the economy will grow 1.3% in 2017, which is down 0.1 percentage points from last month’s forecast. They foresee a 3.0% expansion in 2018.

SOUTH AFRICA | Economy likely expanded at slowest pace in seven years in 2016

South Africa’s economy has been in the doldrums for a prolonged period of time due to subdued global demand and a myriad of political and economic problems at home. Economic activity recorded another dismal expansion in the third quarter of 2016, thus likely bringing overall growth last year to the slowest pace in seven years. A weak labor market and high inflation took a toll on private consumption and the investment environment was undermined by the political infighting in the ruling ANC party. The country managed to avoid a credit downgrade last year, causing analysts to give the government and its reform agenda the benefit of the doubt. However, it will not be long before investors and rating agencies want to see some tangible results. All eyes are now on the 2017 budget, which will be delivered next month. Details on tax increases and the announcement of more restrictive fiscal policy are expected.

Downside risks persist for South Africa’s economy in 2017. Ongoing political scandals, the dire state of the labor market and the potential effect of Trump’s protectionist policies will weigh on growth. On a positive note, a gradual improvement in the world economy and a recovery in commodity prices will support South Africa’s economy. On balance, the FocusEconomics panel expects GDP to expand 1.2% in 2017, which is unchanged from last month’s estimate. In 2018, growth is expected to accelerate to 1.8%.

ANGOLA | Growth remains subdued 

Angola’s economic performance in 2016 is likely to have been fairly dismal, with the country battered by falling oil prices, spiraling inflation and rising public debt. Consumer prices continued to increase stubbornly throughout the year despite three Central Bank rate hikes in 2016, as the depreciation of the kwanza and subsidy cuts observed in the first half of the year fed through. In response to rock-bottom oil prices, the country trimmed production by 78,000 barrels a day to 1.673 million from 1 January as part of the OPEC agreement, which should prop up the price of Angola’s main export. On the political scene, the ruling MPLA party recently nominated João Lourenço as its new leader for when President José Eduardo dos Santos steps down before August’s elections. The current defense minister is regarded as a member of the old guard, meaning a major change in policy direction is unlikely.

Angola’s economy should gain some momentum in 2017, thanks to improved terms of trade and a planned increase in public spending. Analysts expect GDP to grow 1.5% in 2017, which is unchanged from last month's forecast. In 2018, they see the economy growing 2.7%.

KENYA | 2016’s downside risks to growth drag over into 2017

Recent data confirm that Kenya’s economy was one of the star performers in the region last year with growth rates above 5.0% in the first three quarters of the year. GDP expanded 5.7% on an annual basis in Q3, which was a deceleration over the previous quarter’s impressive growth rate, but still corroborated the economy’s strong performance. Economic activity was supported by expansions in all sectors, with services and mining and quarrying leading the way. Nevertheless, downside risks remain. The interest rate cap introduced by the government in September of last year has so far had a negative impact on credit growth in the already stressed private sector. Bank lending to the private sector has slowed considerably in recent months, compared to the double-digit increases recorded in 2015. This, coupled with the uncertainty surrounding the presidential elections in August, has affected business sentiment as investors take a wait-and-see approach.

Public investment, loose monetary policy and closer integration in the East African Community will support Kenya’s economy in 2017. However, rising political uncertainty regarding presidential elections will put pressure on growth. On balance, FocusEconomics panelists see the economy growing 5.8% in 2017, which is unchanged from last month’s estimate. In 2018, the panel sees GDP growth at 6.0%.

INFLATION | Inflation continues upward trend in December 

Recent data show that inflationary pressures in the region remained elevated in December. Inflation inched up from 13.8% in November to 13.9% in December, which marked a multi-year high. Inflationary pressures remain high due to weakness in currencies across the region as well as energy and water shortages.

Panelists participating in this month’s FocusEconomics Consensus Forecast expect regional inflation to average 11.1% in 2017, which is down 0.2 percentage points from the previous month’s estimate. Panelists see regional inflation receding to an average of 9.0% in 2018. 

See the Full FocusEconomics Sub-Saharan Africa Report

Written by: Dirina Mançellari, Senior Economist

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