BY NBM 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 of the largest economies in the region such as Nigeria and South Africa.
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 largest economies in the region; South Africa, Angola and Nigeria, which account for over two thirds of the region’s economic output. Despite the growth, the credit rating agency gave sub-Saharan Africa an overall negative outlook.
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 some countries that had elections and also the liquidity stress in some countries in the region.
Now as we begin 2018, things seem to be getting back to normal 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 would gradually increase to 3.5%. The slight positive outlook is seen as a result of an increased growth 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 the sub Saharan African growth slightly recovering, the report still forecasts the 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 for Sub-Saharan African sovereigns reflects the region’s subdued growth recovery, fiscal challenges and heightened political risks.
The negative economic outlook has been as a result of the disparities that are masked by the aggregate growth numbers of the region. Even though the overall growth of the region is rising, matters are different when it comes down to individual economies. Some economies such as 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 however; on the other hand, some countries will not enjoy the same benefits. Zambia, DRC and Angola will see their growth dampen due to their public debt burden being raised. 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. Nigeria and South Africa are expected to have slower growths 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 come 2019 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 weak governance which is usually common 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 the growing corruption that is present in most institutions in these countries. Besides, due to weak governance, the government delays on infrastructure development with effects of low returns as private investors in the sector reduce their investments causing the poverty gap to keep widening as private savings and investments remain low, leading to a slowdown in the economic growth.
