Thursday, October 29, 2020

IMF still maintains signs of growth for SSA but at a soft pace

By Portia Nkani

The economic opportunity in Sub Saharan Africa (SSA) is suddenly slowing down, as some of the major economies are not doing very well in economic growth. Tensions are uphill as some are going into general elections this year.

The recovery continues, albeit at a softer pace as the region continues to face significant uncertainties and downside risks from the global performance. Global uncertainties including the US trade and monetary policies, capital outflows, domestic political risks, fiscal vulnerabilities, volatile weather conditions and weak policy implementation continue to weigh on the outlook. 

As a result of the more challenging environment, the region’s growth is likely to be stuck in the ‘new normal’ of low growth for somewhat longer. 

According to the latest release of World Bank’s Global Economic Prospects issue of January 2019, growth in Sub-Saharan Africa is expected to pick up to 3.4 percent in 2019, from an estimated at 2.7 percent in 2018 slower than expected  partly due to weaknesses in Angola, Nigeria, and South Africa. It is expected to further slightly rise to an average of 3.7 percent in 2020-21.

This is predicated on diminished policy uncertainty and improved investment in large economies, together with continued robust growth in non-resource intensive countries.

These estimates are no far from the same Banks’ Africa Pulse report of late last year when it projected a 3.3 percent rise in 2019 reflecting a rebound in oil production in Nigeria and Angola.

From the economic prospectus report, the three mainly cited powerhouses of SSA: Angola, South Africa and Nigeria are so under pressure and their economies have grown at a snail’s pace and once went into a recession during the last year.

In Nigeria, oil production fell, partly owing to pipeline closures in mid-2018, while non-oil activity was dampened by lackluster consumer demand, as well as conflicts over land between farmers and herders that disrupted crop production.

In Angola, the region’s second largest oil exporter-stagnant non-oil activity was aggravated by a contraction in oil production, which fell sharply due to underinvestment and to key oil fields reaching maturity.

South Africa’s economy emerged from a technical recession in the second half of 2018, in part due to improved activity in the agricultural and manufacturing sectors. However, report shows “growth remains subdued, as challenges in the mining sector and weak construction activity are compounded by policy uncertainty and low business confidence.” Against this backdrop, the South African government announced measures to support the economy through reprioritized spending and structural reforms to improve the business environment and infrastructure delivery.

Even though Botswana has not been singled out in the Banks’ report, from the local observations, the country’s economic growth gained momentum in Q2 2018, driven by improved consumer and investment spending.

Having recovered from the impact of the emerging market currency fallout on the South African Rand in the last few months, Botswana Pula is expected to strengthen to 10.63 US dollar during the last 2018 quarter.

In a recent interaction with South Africa based, Absa Chief Economist, Jeff Gable in his Sub Saharan Africa Research presentation in Grahamstown, said, for the last five years South Africa, the second fastest growing economies in the world has grown slowly at 5-6 percent. Nigeria which is also Africa’s biggest economies has been growing at 6-7 percent, it then slowed and went deeper into recession. South Africa, Angola and Nigeria are 2/3 of the continent’s GDP.  “The economic opportunity is suddenly going less. The African aggregation is not going to be helpful,” he said sharing his thoughts.

In South Africa growth falters with elections looming. South Africa entered its first recession in Q2 2018 as GDP contracted 0.7 percent from quarter to quarter, since the global financial crisis. General elections are likely in April/May 2019, and while the factional divide within the African National Congress remains, the party seems unlikely to lose its majority, according to Absa researcher. 

Focusing at home, he said it is encouraging to see that economic performance was not solely reliant on the mining sector but also supported by improved consumer and business health.

It is therefore expected for the real gross domestic product to expand to 4.6 percent from 2.4 percent in 2017, as both the mining and non mining sectors support growth. 

OUTLOOK

Excluding Angola, Nigeria, and South Africa, World Bank projects that growth in the rest of Sub-Saharan Africa is expected to remain relatively solid, but with significant variation between country groups.

However, external headwinds have intensified, as growth among main trading partners moderates, global financial conditions tighten, and trade policy uncertainty persists. Per capita income growth is predicted to remain well below its long-term average in many countries, yielding little progress in poverty reduction, and highlighting the need for policy measures to raise potential output while raising the productive capacity of the poor.

From the Banks’ analysis, growth in Nigeria is projected to rebound to 2.2 percent in 2019 and 2.4 percent in 2020-21. “These forecasts are unchanged from June and assume that oil production will recover, but peak below government targets, while a slow improvement in private demand will constrain growth in the non-oil industrial sector,” stated the report.

Nigeria, the political landscape is increasingly overshadowing economic developments as the country prepares for the 2019 elections.

In his views, the Absa chief economist Gable earlier said, with elections in full swing, “we expect political and ethno-religious tensions to escalate, particularly when campaigning for the presidential elections kicked off in mid November. We expect the disruption to growth to be minimal and the consumer demand to continue into 2019 as there is unlikely to be a let up in tight monetary policy conditions in the near term.”

In Angola, the World Bank indicated that the growth forecast has been upgraded to 2.9 percent in 2019, moderating to an average of 2.7 percent in 2020-21. A recovery in the oil sector, as new oil fields come on stream, is expected to boost growth, along with a pickup in activity in the nonoil sector as reforms bolster the business environment

For growth in South Africa, the Bank said the growth will recover more slowly than previously expected, to 1.3 percent in 2019, before rising to 1.7 percent in 2020-21. High unemployment and slow growth in household credit extension are expected to constrain domestic demand in 2019, while fiscal consolidation limits government spending. Higher growth in 2020 reflects the expectation that the government’s structural reform agenda will gradually gather speed, helping to boost investment growth, as policy uncertainty recedes and investor sentiment improves.

For our diamond rich two million populated country, Botswana, local economists projects growth to expand between 4.5 percent to 4.6 percent for the year 2018.

“Growth prospects remain upbeat, buoyed by higher diamond production and improvements in the non-mining sector. Growth in advanced and emerging market economies will spur demand for Botswana’s rough diamonds in the short to medium term, boosting economic activity,” said a local economist from Barclays Botswana, Naledi Madala recently.

Outside the mining sector, she further anticipated that the services sector, improved water and electricity stability, growth in government expenditure and other economic diversification initiatives under promotion by the government should further stimulate the economy.

South Africa emerged from recession in the third quarter with a moderately better than expected GDP rebound of 2.2 percent, which she said, is encouraging as the slow growth in South Africa is one of the major downside risks to Botswana’s growth prospects.

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