SSA to recover slightly, but economic outlook generally uninspiring

0
278
Advertisement

NLM Writer

After enjoying about two decades of robust growth, the situation in Sub Saharan Africa seemed to have hit a snag after the economic growth slowed down sharply to 1.4% in 2016. This was mainly as a result of low commodity prices as well as the increasing imbalances in some large economies in the region such as Nigeria.

In 2017, the region’s economy was able to slightly recover as its growth stood at 2.7%, according to a report by Moody’s Investors Service, a credit rating agency. The growth was accredited to the slight recovery of the region’s big economies – South Africa, Angola and Nigeria – which account for over two thirds of the economic output. Despite this growth, Moody’s predicts an overall negative outlook for 2018.

This was because the number of countries with a negative rating or chosen for a downgrade outweighed those with a positive rating. For, example, countries to be downgraded outnumbered those to be upgraded six to one. This was as a result of the political uncertainty that arose in countries that had elections, as well as liquidity stress in others.

Things seem to be getting back to normal in 2018 for the region in terms of economic growth. This is after Moody’s Investors Service through their 2018 sub-Saharan Africa outlook report projected that the regional GDP of the region would gradually increase to 3.5%. The growth is seen to be the result of increased expansion in countries that act as major trading partners for the economies in the region. For instance, the growth of China and India is advantageous as they both act as significant import sources for countries in the region. Additionally, an increase in commodity importers is expected as demand in the region continues to increase.

However, despite this slight recovery, the report still forecasts that growth will be fragile thus causing the outlook for sovereign ratings in Sub-Saharan Africa to remain negative for the coming 12-18 months. According to Zuzana Brixiova, Moody’s Vice President and Senior Analyst on the report, the negative outlook reflects the region’s subdued growth recovery, fiscal challenges and heightened political risks.

It is also as a result of the disparities that are masked by the aggregate growth numbers. Even though the overall growth of the region is rising, matters are different when it comes down to individual economies. Countries like Ethiopia, Senegal and Kenya are expected to experience an increase in growth because of implementing several reforms to their business environments, growing the agricultural sector as well as improving their infrastructure. This will see investment to their economies increase. On the other hand, countries like Zambia, DRC and Angola will see their growth dampen due to rising public debt burden. In addition, the shift of the region from being commodity exporters to importers leaves these countries struggling with low investments and subdued commodity prices.

Apart from this, the growth of the largest economies in the region is expected to be slower than projected thus causing the overall growth of the region to pull down. For example, Nigeria and South Africa are expected to have slower growth rates than expected. South Africa’s growth is expected to be affected by political and policy uncertainty as elections near which will see investments to the country reduce. On the other hand, Nigeria will be preparing for their general election for next year, causing structural reforms to weaken and spending pressures to increase thus affecting the growth of the economy.

Additionally, the negative outlook is also caused by the weak governance that is usually the case in most countries in the region. According to a report by Worldwide Governance Indicators (WGI) most countries in the region, especially those involved in the oil industry, were at the bottom end of the global ratings.

This is as a result of growing corruption in the institutions, weak governance, and government delays on infrastructure. The result is that private investors hold off, causing a slowdown in economic growth.   ^

LEAVE A REPLY

Please enter your comment!
Please enter your name here