Six of the top ten global economies are expected to be in Sub-Saharan Africa
A view of Plateau’s central business district ahead of the 34th edition of the Africa Cup of Nations (AFCON) scheduled to be held from January 13 to February 11, 2024, in Abidjan, Ivory Coast, on December 8, 2023. (Photo : Reuters)
JOHANNESBURG – Africa is facing economic headwinds this year, but some of the continent’s brightest sparks are casting a more hopeful light.
Six of the world’s 10 best-performing economies are projected to come from sub-Saharan Africa in 2024, according to the International Monetary Fund (IMF).
Their smaller size won’t be enough to offset the less-than-stellar performances of South Africa and Nigeria, which together account for two-fifths of Africa’s $2 trillion economy. But collectively, they are helping to make a difference in a region that still faces serious challenges from poverty and inequality.
“Sub-Saharan Africa’s growth prospects are brightening,” said Bloomberg Africa economist Yvonne Mhango. “Eight of the region’s 10 largest economies – which together account for another 40% of regional GDP – will grow by 5% on average. “
These include Ivory Coast with 6.6% and Tanzania with 6.1%. The two countries have done a good job of diversifying their economies and attracting foreign investment.
As a result, the IMF sees regional growth improving modestly to 4% in 2024 from 3.3% in 2023. And while the two heavyweights are unlikely to deliver faster output in the near term, both Nigeria and South Africa pursue reforms that may yield benefits over time.
The IMF sees growth in Nigeria rising to around 3% this year and next, while South Africa is forecast to expand by 1.8% and 1.6% over the two years, up from a tepid 0.9% in 2023 .
‘Big Picture’
“The big picture for Africa, the external environment is difficult,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank. “But reforms matter and that will be central to the growth recovery we expect in both South Africa and Nigeria.”
Nigerian President Bola Tinubu has launched aggressive measures to loosen the country’s foreign exchange regime and remove costly fuel subsidies.
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A general view of the Johannesburg skyline on Saturday. (Photo: AFP)
South Africa, plagued by an energy crisis, is finally making tentative progress in boosting electricity supply, which is expected to continue.
“The important point for South Africa is that we have probably reached the tipping point,” Khan said. “The next few years should deliver faster growth. And that’s underrated.”
This is despite the potential uncertainty ahead of this year’s elections. The vote, likely to be held in April or May, could cost the ruling African National Congress its absolute parliamentary majority. However, it is expected to remain the largest party in government and the vote will not have a major impact on policy, he said.
Short term attention
However, analysts remain cautious about Africa’s prospects in the immediate future. The recovery in growth comes from a low base after the setbacks the region suffered during the coronavirus pandemic, straining public finances and leaving many countries struggling with large debts.
These have already caused defaults in Ghana, Zambia and Ethiopia, with the IMF warning that other nations remain at risk and access to foreign capital markets effectively shut down.
Moody’s Investors Service has a negative outlook on African sovereign credit due to increased debt refinancing risks and because it expects slower growth in China to reduce demand for the region’s commodity exports.
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Aurelien Mali, senior credit officer at Moody’s Sovereign Risk Group, notes that Africa’s debt-to-Gross Domestic Product (GDP) ratio has risen to 60% on average. This is back to the crisis levels of the early 2000s that prompted debt cancellation for the poorest nations.
“Many of these countries ran twin deficits — fiscal deficits and current account deficits — in the post-Covid period,” he said. “They have to have access to outside funding at a time when you have a wall of expirations.”
Moody’s estimates that about $5 billion of Eurobonds will mature in 2024 in sub-Saharan Africa, with more than $6 billion in 2025. This does not count debt from bilateral creditors such as China or multilateral lenders including the IMF and the World Bank .
No African country has tapped into the Eurobond market since the US Federal Reserve (Fed) began aggressively raising interest rates in 2022.
Nor do analysts see market access for most African sovereign issuers reopening this year, unless the Fed cuts interest rates aggressively, which could help bring borrowing costs down to more affordable levels.
Optimism that the Fed will move quickly to cut borrowing costs in 2024 has faded in recent weeks amid signs that the US economy remains strong.
“Many of these countries, despite the recent rally, are still locked out of the market. They have to find new ways, as their debt matures, to roll it over to meet their obligations,” said Patrick Curran. , senior economist at Tellimer Ltd. “Countries specifically in Africa but generally in frontier markets will be particularly vulnerable as long as interest rates remain close to current levels.”