In 2018, Nigeria’s economy stuttered, foreign investors welcomed South African President Cyril Ramaphosa’s anti-corruption drive and budget discipline, and despite a rebound in oil prices, Angola’s economy continued to experience a slump, while Ethiopia’s new reformist prime minister Abiy Ahmed implemented a series of economic reforms aimed at attracting foreign investor as well.
Nigeria is set to go to the polls in what is essentially a referendum on President Mohammed Buhari’s performance thus far.
The election, which will be held next month, comes as Africa’s biggest economy is in the doldrums – although the International Monetary Fund (IMF) forecasts growth to pick up to 2.3% in 2019, but says inflation will rise by 1.1% year-on-year to 13.5% this year.
The weak performance in 2018 occurred despite the global price of crude oil, which accounts for over half of government revenue, shooting up, peaking at $76.41 per barrel in October. Production in the West African nation was also strong, reaching 1.93m barrels per day in August.
Oil prices are forecast to average $67.45 per barrel next year, according to a Reuters poll of economists and analysts, down from an average of $72.84 per barrel this year, but up from $54.15 per barrel in 2017.
As Nigeria’s economy stutters, the Northern region of the country continues to experience severe insecurity, with thousands killed this year in herder-farmer violence, while the militant Islamist group Boko Haram continues its attacks, including killing more than 100 soldiers at a single base in November.
The main opposition People’s Democratic Party (PDP) has been buoyed by a series of defections from the ruling party. Its presidential candidate, 72-year old Atiku Abubakar, has promised ambitious programmes to lift 50m Nigerians out of poverty and create 3m jobs a year.
The incumbent’s prospects of securing another term will likely be determined by the state of the economy, which is vulnerable to global events out of its control, says John Ashbourne, a senior emerging markets economist at Capital Economics.
“In Nigeria, growth will stay quite weak and may even slow down a little bit because oil price forecasts show a decline and there may also be some disruptions because of the election,” he says. “The vote appears to be close and the re-election of President Buhari is not guaranteed, therefore, there will probably be quite a long period after the poll of some policy drift.”
Meanwhile, Africa’s second-biggest economy, South Africa, will also hold general elections next year as President Cyril Ramaphosa is juggling the twin challenges of pushing through an anti-corruption campaign and appeasing supporters of the African National Congress (ANC) caught up in the drive, including former President Jacob Zuma.
The elections, which will likely be in May, come as the country slowly emerges from a technical recession, with growth predicted to reach 0.8% in 2018 and 1.4% in 2019. The sluggish growth was attributed to droughts, weak agricultural and manufacturing output, and poor consumer spending.
While foreign investors have welcomed Ramaphosa’s anti-corruption drive and budget discipline, the country’s planned land reform policy – including land expropriation without compensation – is proving to be controversial despite the government’s attempts to placate investor concerns.
“National leaders have to bend over backwards to accommodate the nationalist, populist sentiment that is dominant within the party; however, this hinders the projected message of a return to ordinary management and respect to private property that is so important in resuscitating investor confidence after the disastrous past few years,” says Mukhisa Kituyi, secretary-general of the United Nations Conference on Trade and Development (UNCTAD).
Angola to exit recession
Meanwhile, despite a rebound in oil prices, Angola’s economy is also experiencing a slump, with GDP shrinking marginally by 0.1 per cent in 2018. But Africa’s second largest oil exporter is expected to exit recession in 2019, with growth expected to pick up to 3.1 per cent due mainly to an improvement in foreign currency allocation and declining inflation, which will fall year-on-year by 9.3 per cent to 20.5 per cent in 2018 and it is projected to drop further to 15.8 per cent in 2019.
Much of the economic recovery in the country is due to the reform policies of President João Lourenço and the efforts of José de Lima Massano, the central bank governor, according to Charles Robertson, global chief economist at investment banking company Renaissance Capital.
“Angola had an absurdly over-valued currency a year ago, but it is remarkable what the central bank governor has done in the space of a year,” he says. “The country is heading in the right direction but the dependency on oil exports leave the country vulnerable to global events out of its control.”
East Africa powers ahead
While the continent’s three largest economies stutter, East African countries continue to drive much of the growth on the continent, with the IMF expecting Ethiopia (8.5 per cent), Rwanda (7.8%), Tanzania (6.6%), Kenya (6.1%) and Uganda (6.1%) to perform well above the global average next year.
While Ethiopia remains a global leader in terms of growth, there are signs that a slowdown could be on its way as a foreign exchange shortage – which was only temporarily alleviated when the United Arab Emirates deposited $1bn in the central bank in June – continues to weigh on the construction and manufacturing sectors.
However, prime minister Abiy Ahmed has implemented a series of economic reforms aimed at attracting foreign investors, including allowing private firms to provide internet services through Ethio Telecom’s infrastructure. Privatisations are being considered at a range of state-owned monopolies.
“Ethiopia is going through plenty of changes but the underlying story is still an investment-led push driven by the government with significant distortions to currency policy,” says Robertson. “However, investment levels are very high and the model is working for now, but it is unclear how this will pan out next year.”
Kenya, Rwanda and Uganda should continue to perform well, benefiting from a strong rebound in the agricultural sector following the drought in 2017 and lower oil prices next year.
The West African Economic and Monetary Union (WAEMU) member states, meanwhile, are expected to grow at least 5% or more, with Côte d’Ivoire (7%) and Senegal (6.7%) leading the way. Within the region, Senegal, Benin and Guinea-Bissau will all hold elections next year, which could affect policy implementation.
The sluggish recovery of the continent’s three largest economies, which account for almost 40% of the continent’s GDP, will lead to sub-Saharan Africa’s growth reaching 3.1% in 2018 and 3.8% in 2019.
In North Africa, Egypt’s economy is projected to rise by 1.1% year-on-year to 5.3% in 2018 and 5.5% in 2019, as the tourism and natural gas industries recover, and reforms begin to show results. Algeria and Tunisia will grow marginally to 2.7% and 2.9% next year. Morocco’s growth will remain stable at 3.2% on the back of subdued non-agricultural activity and a widening trade deficit.
Multilateral organisations, including the IMF and World Bank, have raised concerns about US dollar-denominated debt levels in Africa, especially since the currency has strengthened against emerging and developing economies. Since 2013, there has been an increase in African governments issuing international bonds for a variety of needs, including infrastructure projects and financing budgets. Eight African countries, including Ghana and Sudan, featured among the 30 countries with the highest debt-to-GDP ratio globally. However, a full-blown debt crisis may still be some way off because debt levels in most countries remain manageable.
“We shouldn’t be overly alarmed about African debt just yet,” Robertson says. “While there has been a record level of issuances in the last two years, debt crises usually come about when you are trying to roll over the debt, not when you’re taking out the debt in the first place, so we won’t have a clearer picture until the debt matures.”
Looking beyond 2019, Africa’s population is set to double over the next three decades, reaching around 2.2bn people by 2050, and half of the world’s working population will be from Africa. This demographic dividend and strong economic growth are a unique opportunity for Africa to converge with high-income countries. However, the continent may miss its chance because of a failure to create opportunities, according to a recently published report by Capital Economics, Taking the Long View: Africa in 2040.
“[The] huge increases in population will require massive investments in social and physical infrastructure, [and] given African governments’ poor performance at meeting the needs of their existing populations, most [nations] will struggle to meet this new challenge,” the report states.
The sobering prediction is echoed by Kituyi who believes that the positive could quickly become a negative.
Huge increases in Africa’s population will require massive investment in the coming decades.
“Talk of a population dividend needs to be tempered,” he says. “If you can develop a human capital resource and unleash its potential in these changing times of technology then those people are an asset. But if you look where Africa is now, much of the fastest population growth is in areas with the least capacity to invest in the human resource, so they are voting with their feet and leaving their home territories.”
Developing human capital resources will require significant investment in infrastructure and social services, but the continent currently has an annual infrastructure funding deficit of $68–$108bn according to the African Development Bank (AfDB).
Various organisations have launched a series of infrastructure investment vehicles, such as the AfDB’s Africa50 Infrastructure Fund. But investment at current levels will fail to keep pace with demand, leaving millions of young Africans without opportunities to participate in the economy. The future population profile is also different from demographic dividends seen in other regions, such as Asia, with more young people and fewer savers.
Creating jobs that keep pace with the population will be the greatest challenge facing the continent, but if current job creation levels are anything to go by, the dividend could turn into a crisis.
“Part of the arithmetic going forward is to replace the talk about the demographic dividend with talk about the critical need for resources to invest in human capital,” Kituyi concludes.
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