Real GDP growth in sub-Saharan Africa (SSA) was constrained by the under-performance of the region’s largest economies: South Africa, Nigeria and Angola. Indeed, the estimated SSA regional growth rate of 2,8% for the year masks a wide divergence in growth outcomes between individual countries. Given an expected improvement in growth in the large economies, though, average growth for the region is forecast to lift to 3,25% in 2019.
The further tightening of global financial conditions or any unexpected slowdown in China would, however, imply downside risk in the region. Numerous countries on the African continent will need to limit the potential negative impact on exports should the UK leave the EU without agreeing to new trade deals. Those trade agreements with the UK which were previously negotiated through the EU will have to be renegotiated.
At least, after running expansive fiscal policies for a number of years following the Global Financial Crisis (GFC), general government budget balances in SSA, in aggregate, stopped expanding. Countries in the region are increasingly focused on fiscal consolidation, but deficits, nonetheless, remained large in, for example, South Africa, Zambia, Ghana, Namibia, Kenya and Uganda. At the same time, the gross government debt level for the region, in aggregate, continued to increase relative to GDP.
A number of the African economies that continue to deliver high economic growth rates are to be found in East Africa. Although lending was constrained in Kenya by the retention of interest rate caps, real GDP growth remained strong, partly supported by buoyant tourism-related receipts. Growth of around 6% is forecast for 2019, similar to the estimate for 2018. Kenya has continued to run large budget and current account deficits and the country’s International Monetary Fund (IMF) stand-by credit facility, extended by six months in March 2018, was not renewed. Although a large share of Kenya’s total public debt is external debt, concessional loans remain a significant source of funding for infrastructure projects.
Real GDP growth also remained strong in Rwanda, Tanzania and Uganda. The latter runs large twin deficits and government debt is expected to continue rising. However, a significant portion of the Ugandan government’s spending reflects capital expenditure. The country is supported by multilateral organisations and it attracts a significant amount of concessional financing.
As experienced elsewhere in EM, global economic developments, including the shift towards greater US trade protectionism and US dollar strength, proved unfavourable for Africa’s financial markets, including countries where economic growth is strong. In East Africa, total equity market returns in US dollar were negative in Kenya (-13,3%) and Tanzania (-14,1%), despite their relatively stable currencies.
Angola made progress in fiscal consolidation. However, the economy contracted in 2018 and lower oil prices are likely to renew pressure on the government’s revenue receipts. Additional risk emanates from non-performing loans, which have accumulated in state-owned banks. After depreciating sharply, the Angolan kwanza remains vulnerable to fluctuating oil prices. However, access to IMF funding is supportive. Also, the nascent shift by the Banco Nacional de Angola towards a more flexible currency regime should assist the economy in adjusting to macroeconomic imbalances.
Among other oil producers on the continent, Nigeria remained lacking in structural economic reform. The country experienced persistent high inflation and soft real GDP growth. The latter was constrained by disappointing oil production. Against the backdrop of a lacklustre domestic environment, the Nigerian equity market recorded a negative total return in US dollar of 15,1% in 2018.
Following a marked improvement in response to foreign capital inflows early in 2018, Nigeria’s foreign exchange reserves declined late in the year as the country’s external accounts weakened. Nonetheless, the sovereign issued $2,86 billion in Eurobonds in November 2018, which helped to keep the Nigerian Autonomous Foreign Exchange Rate relatively stable.
On the fiscal front, Nigeria’s total government debt is low, but reflects a moderate upward trajectory. Debt servicing cost is high. Encouragingly, the government’s budget for 2019 reflects an intended fiscal consolidation. However, economic activity is undiversified and total GDP and fiscal outcomes are materially influenced by fluctuating oil prices and production levels.
In the Common Monetary Area, Namibia’s GDP growth continued to disappoint and fiscal consolidation remained inadequate, partly reflecting an excessive government wage bill. Loss-making state-owned companies imply the balance sheet of the state is deteriorating. The level of public sector debt is moderate, but has increased rapidly in recent years. The pressure emanating from these developments was alleviated by access to African Development Bank financing and an improvement in the country’s current account balance. Ultimately, though, Namibia is unlikely to endure ongoing fiscal consolidation if GDP growth does not lift, implying risk to the Namibian dollar peg to the South African rand over time. The country’s equity market recorded a negative total return of 9,9% in US dollar given the weak economic environment and depreciation of the Namibian dollar.
In West Africa, amid low inflation outcomes, growth remained strong in Côte d’Ivoire. This was supported by a high level of public sector infrastructure investment. The government is focused on improving business conditions and pursuing fiscal consolidation, although progress may be constrained by revenue-underperformance. Real GDP growth of 7% is estimated for 2018, which is also the forecast for 2019.
A number of the African economies that continue to deliver high economic growth rates are to be found in Africa.
Among the non-oil commodity producers, Botswana experienced firm economic growth despite softer mining activity, notably diamonds. Benign inflation precluded the need for monetary policy tightening, while the government’s Economic Stimulus Programme is expected to support economic activity. The country also runs a current account surplus and has a high level of foreign exchange reserves relative to imports. The large weight of the South African rand in the basket of currencies to which the pula is fixed, makes the country vulnerable to tighter global financial conditions. Looking ahead, solid real GDP growth of 4% is forecast for 2019, which follows estimated growth of more than 4% in 2018. Despite the economy’s sound performance, Botswana’s equity market recorded a negative total return of 14,1% in US dollar in 2018.
Elsewhere, Zimbabwe’s economy remained stressed following the end of former President Robert Mugabe’s rule, given severe foreign exchange shortages, liquidity constraints and inadequate economic infrastructure. Supply constraints led to a spike in inflation (an annual inflation rate of more than 40% was recorded in December 2018). A comprehensive economic reform strategy is needed, including a meaningful fiscal adjustment. In late 2018, the IMF discussed the potential for a staff-monitored programme with Zimbabwe, but this precludes an IMF financial programme, which would require the clearance of arrears with international lenders.
In Zambia an excessively loose fiscal policy prevented access to an IMF support package. Even though growth has remained relatively firm, it is insufficient to prevent a continued build-up in the country’s already high debt level. Macroeconomic risk is elevated. Accordingly,
Fitch Ratings and S&P each downgraded Zambia’s long-term foreign currency debt rating by one notch to “B-” in late 2018. Assistance from the IMF is imperative, but not assured.
In North Africa, Morocco continues to address its fiscal and external imbalances, but structural economic impediments persist. A high level of imports, to a significant extent reflecting higher oil prices, placed pressure on the current account balance, while credit extension was constrained. Looking ahead, the fall in oil prices late last year, if sustained, should improve Morocco’s terms of trade and its trade balance, while supporting domestic purchasing power against a low-inflation backdrop. Firm non-agricultural GDP growth is expected in 2019, but continued economic reform is needed.
Even though its foreign exchange reserves declined in 2018, Morocco appears unlikely to make use of its IMF Precautionary and Liquidity Line, although foreign debt issues seem probable. In any event, the exchange rate peg (against a basket consisting of the euro and US dollar) was maintained through last year. Early in 2018 the fluctuation band for the dirham was widened, while the country is expected to shift towards a more flexible exchange rate regime in the medium term. Amid modest depreciation of the dirham against the US dollar, the equity index fell 9,9% in US dollar in 2018.