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African economic activity regaining momentum

6721454925 c5462964fb zEconomic growth is expected in sub-Sahara Africa in 2018. (Image source: Department for International Development/Pete Lewis)After broad-based slowdown in 2016, growth revival is underway across much of sub-Saharan Africa

Twenty of the region’s 45 economies are expected to grow robustly at five per cent or higher (mostly in eastern and western Africa) in the New Year.

The International Monetary Fund (IMF) regional growth outlook is at 2.6 and 3.4 per cent, respectively for 2017 and 2018 is similar to World Bank’s projections. Growth in SSA excluding Nigeria and South Africa is higher, on average at 5.1 per cent in 2018-19, close to the levels seen since early 2000s.

Developing Africa is a highly diverse regional economy; aggregate growth numbers for the New Year should fall into three divergent groups (see table 1):

*High-achievers – where growth is driven by continuous infrastructure investment (Ethiopia), business-friendly reforms (Senegal and Rwanda), higher oil-gas production (Ghana), along with recovery in the agricultural sector and domestic demand. Elsewhere, growth is expected to recover in Kenya, as political uncertainty eases after the presidential elections and improve in Tanzania on upturns in public investment. Activity is also rebounding in countries hit by the 2015 Ebola outbreak (Guinea, Liberia and Sierra Leone). Ethiopia should remain Africa’s fastest-growing economy over the coming years. 

SSA Growth excluding Nigeria south Africa 1

*Mid-tier performers – where increased output and investment in the mining sector is supporting growth in metal exporters (Niger and Zambia), along with strengthening activity in services (Mauritius) and non-oil sector (Cameroon). Improved weather conditions in southern Africa will boost agricultural output (Mozambique and Zambia). The latter has benefited from recent rainfalls since hydropower sources account for 97 per cent of total electricity production in Zambia, according to the World Bank. But default on foreign debt by the Mozambique government has increased risk-premium, however, ENI (Italian oil major) in June 2017 approved final investment decision for the Coral floating (FLNG) facility in Mozambique, with nameplate capacity of 4.5bn cubic metres/year. The project will have a multiplier-effect on the broader economy. 

*Slow-growth lane – SSA's largest economies: Nigeria, South Africa, and Angola have exited recession, however, their pace of recovery remains tepid. Increased oil production thanks to stability in the Niger Delta (the country’s oil-belt) and good harvest led to growth revival in Nigeria. Reforms in the forex markets will help the non-oil sector, which until 2014 was expanding at a brisk pace. An upturn in the petroleum sector too helped SSA’s
second-largest oil producer (Angola), although fiscal consolidation measures have slowed non-oil growth. 

threegroupings

The normalisation of mining and agricultural production lifted GDP growth in South Africa, but policy uncertainty and low business confidence continue to hinder private investment. Faltering domestic demand also weighs on the manufacturing sector and high unemployment affects consumer businesses. 

Activity has weakened in most Central African Economic and Monetary Community (CEMAC) countries (Chad, Congo, Republic and Gabon) due to steep cuts in public spending. While deep recession has gripped Equatorial Guinea since 2014 caused by depressed oil revenues and rising debt levels.

By economist Moin Siddiqi

See full report in African Review's February magazine issue