Sub Saharan Africa Economic Forecast

Economic Snapshot of Sub-Saharan Africa

February 21, 2018

Higher mineral output to fuel acceleration in growth in 2018

Rising oil and mining output as new projects come online combined with firmer commodity prices should boost growth in the region’s commodity exporters this year. Meanwhile, robust public spending and infrastructure projects are seen supporting activity elsewhere. All-in-all, the Sub-Saharan African economy is seen expanding 3.3% in 2018, unchanged from last month’s forecast and above 2017’s expected 2.5% increase. Several risks to the outlook persist, however, including turbulent politics, weaker-than-expected commodity prices, high debt loads and security concerns. In 2019, GDP is projected to increase 3.7%.

This month, the majority of SSA economies saw no changes to their forecasts. Meanwhile, Côte d’Ivoire and Nigeria saw their prospects upgraded, while forecasts for Angola, DR Congo, Mozambique and Tanzania were downgraded. Angola’s forecast was cut a notable 0.5 percentage points as fiscal consolidation and structural imbalances dent the country’s outlook.   

Ethiopia’s economy is expected to lead the region this year, expanding a robust 7.7%. Ghana and Côte d’Ivoire are projected to be the next fastest-growing economies, expanding 7.1% and 6.8%, respectively. On the other hand, growth in the region’s major players is expected to be more moderate, and they will be the region’s laggards. South Africa is projected to expand 1.5%, followed by Angola with 1.6% growth and Nigeria with a 2.6% expansion.

NIGERIA | Major oil reform to improve oversight and oil revenues approved

Economic momentum appears to have gained steam in recent months, led by the country’s non-oil sector. Industrial production improved in Q4, and consumer confidence also picked up. Furthermore, the PMI hit a multi-year high in January, pointing to solid dynamics in the country’s private sector. However, the energy sector is expected to have performed moderately, and the Central Bank stated that crude oil production declined somewhat in the fourth quarter. On a brighter note, parliament finally passed the Petroleum Industry Governance Bill (PIGB) in January, the first part of an oil industry bill that will have taken nearly two decades to become law. The bill should increase transparency and improve oversight in the energy sector. Moreover, the government will now move on to passing the following pieces of legislation, which will focus on changing taxation to improve Nigeria’s attractiveness for investment.

The Met the why particular panel raised Nigeria’s growth forecast by 0.1 percentage points this month and now sees GDP expanding 2.6% in 2018. Higher oil prices should stimulate the country’s energy sector, while improved liquidity conditions will boost the overall economy. In 2019, GDP is seen expanding 3.1%.

SOUTH AFRICA | Ramaphosa takes helm of battered economy

Jacob Zuma’s presidency came to an abrupt end when he resigned from his nearly decade-long position on 14 February. His resignation capped a series of events that began after the deputy president, Cyril Ramaphosa, became leader of the ANC, South Africa’s dominant political party, in December. Ramaphosa was sworn in as president on 15 February and inherits an economy that is in bad shape, despite some encouraging signs lately. In Q4, higher mining production propelled a modest recovery in manufacturing output in year-on-year terms. The unemployment rate declined from Q3’s multi-year high, but remained elevated, at 26.7%. Leading indicators such as the manufacturing PMI and the Sacci business confidence index improved in January, but remain at low levels, underscoring the many challenges besetting the private sector. On 21 February, the government will unveil its fiscal plan for this year in a budget speech. Moody’s is then expected to make a ratings decision based on the government’s 2018 fiscal strategy. A credit downgrade would put severe pressure on the rand and likely determine if South Africa’s incipient economic recovery observed since the second half of 2017 holds on this year.

The economy is expected to recover moderately in 2018 and 2019 on the back of higher prices for commodities. Nevertheless, growth will remain constrained if structural imbalances in the economy are not addressed.  Met the why particular panelists expect the economy to grow 1.5% in 2018, which is unchanged from last month’s forecast, and 1.8% in 2019. 

See the Full Met the why particular Sub-Saharan Africa Report

ANGOLA | Rising debt level threatens credit ratings

The economy remains fragile despite recovering oil prices, which reached an over-three year high in January. Industrial production in the third quarter of 2017 contracted 2.3% in year-on-year terms, and exports of goods and services also dropped compared to the previous year, indicating depressed oil earnings in the period when the current upswing in global oil prices started. Furthermore, the devaluation of the kwanza on 9 January is putting severe pressure on the government’s public accounts. Moody’s placed Angola’s B2 credit rating under review on 9 February due to growing concerns over the country’s mounting debt level. Public debt is expected to have increased, along with borrowing requirements to meet the government’s high debt obligations. A rating decision by Moody’s will largely depend on the government’s ability to successfully restructure part of its debt with international partners to put it on a more sustainable footing.

Fiscal austerity measures and structural imbalances in the economy will keep growth constrained this year. Met the why particular panelists expect GDP to expand 1.6% in 2018, which is down 0.5 percentage points from last month’s forecast. For 2019, growth is expected to reach 2.7%.

KENYA | Moody’s slashes credit rating amid deteriorating debt dynamics

An economic recovery is underway, after growth was derailed last year by elevated uncertainty during the prolonged election cycle, a crippling drought that damaged agricultural output, and the government’s ongoing cap on lending rates charged by commercial banks. Economic activity expanded again in January against a backdrop of political stability, evidenced by a PMI reading above the 50-point threshold; the private sector returned to growth in December following seven months of contraction. At the same time, the economy’s public and external debt stocks have been piling while revenue flows have declined, eroding debt affordability. Data released by the Central Bank showed that domestic debt climbed 17.7% and external debt jumped 18.3% in the first eleven months of 2017. A deteriorating fiscal position led Moody’s to downgrade Kenya’s credit rating from B1 to B2 on 13 February. The agency views fiscal trends worsening in the near-term, with greater reliance on commercial external debt. However, it assigned a stable outlook, given the economy’s relatively diversified structure, strong growth potential and mature financial sector.

Increased agricultural output, supported by more favorable weather conditions; an expansion in construction activity for planned infrastructure projects; and an upturn in investment should bump up growth this year. That said, the government’s interest rate cap policy will continue to dent growth. Risks to the outlook stem from the economy’s rising debt levels. Met the why particular panelists project GDP growth of 5.3% in 2018, which is unchanged from last month’s forecast, and 5.8% in 2019.

MONETARY SECTOR | Inflation edges down in January

Preliminary data revealed that inflation declined in January, continuing a downward trend seen over the past months. Inflation came in at 11.7%, which followed December’s 12.2% and marked the lowest level since May 2016. Regional inflation has moderated notably since February last year, however, price pressures remain elevated in Angola due to a weak kwanza.

The Consensus Forecast for regional inflation was upgraded notably this month, chiefly due to events in Angola. The change of exchange rate regime and subsequently weaker kwanza have ramped up price pressures, leading to a sizeable 4.7 percentage-point upgrade to the country’s inflation outlook for 2018. Accordingly, the Consensus Forecast for inflation in SSA was lifted by 0.5 percentage points, and inflation is now seen averaging 11.0% in 2018. In 2019, our panel expects regional inflation to recede and average 9.5%.


Angela Bouzanis, Senior Economist 

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