The tide has turned for many African countries in terms of growth, says Citibank Africa economist David Cowan.
He expects growth to gain more traction this year and next, as growth in the two biggest economies in Africa – Nigeria and South Africa, which contribute 50% of sub-Saharan Africa's gross domestic product (GDP) – show promise.
However, Cowan says there is a mixed outlook for other African countries.
“The slow or stable growth rates have been a good health check, because for too long there was an Africa rising story that seemed to be unchecked and not critically evaluated according to what was going on on the continent,” he says, adding, however, that there is positive reform in countries such as Angola, Zimbabwe and Botswana.
Cowan believes the revisions to GDP growth forecasts for South Africa – with a consensus predicted growth rate of 2% for this year – coupled with “Ramaphoria”, will significantly upgrade the growth outlook for Africa in general.
However, the International Monetary Fund has not changed its forecast for South African growth to 2%, and Cowan explains that is owing to a sober evaluation of existing indicators, rather than business optimism.
Cowan says the forecast growth rate for Nigeria of 2.5% and the growth rate of South Africa of 2%, does not necessarily translate into GDP growth, as seen with growth in Nigeria “standing still” for the last two years.
“Having said that, positive [developments] are happening [among] the oil exporters,” he adds.
Oil exporting countries in Africa had a negative growth rate in 2016, which heavily impacted on investment and resulted in “trapped cash” in oil exporting countries.
“[Citibank] predicts up to $4-billion is trapped in Egypt, $5-billion to $6-billion in Nigeria, and about $5-billion in Angola,” explains Cowan.
Angola is issuing new debt, he says, with Angolans believing that, with oil prices at their current levels, the country will clear its backlog of foreign exchange for corporates – estimated at about $3-billion.
“Although there seems to be considerable optimism about the prospects for economic reform following the election of Angola President João Lourenço in August 2017, there is still a political reality that has to be resolved,” says Cowan.
At present, there seem to be two centres of political power – a formal one around the new President and an informal once around the previously longstanding incumbent José Eduardo Dos Santos, who remains president of the ruling political party.
“A key sign of any change in overall economic policy now will be in exchange rate policy. The decline in foreign exchange reserves has continued into this year, from $20.8-billion at the end of December 2016 to $13.1-billion at the end of January.
“In response, the Banco Nacional de Angola, devalued the kwanza to just over Kz200:$1 and has let it gradually weaken since then, but it still seems considerably out of line with the parallel rate which is still trading over Kz400:$1 and the size of the currency adjustment made in Nigeria,” Cowan highlights.
The main policy issue is that there was a slow or partial adjustment of the exchange rate in all the main Africa oil exporting countries with flexible exchange rate regimes – Algeria, Angola and Nigeria – which has resulted in widening parallel exchange rates to official rates and substantial foreign exchange shortages. This is because supply is effectively rationed by the central banks.
This, in turn, has squeezed imports and the ability of the private sector to operate, driving a sharp slowdown in growth.
On the upside, the introduction of the Nafex exchange rate window in Nigeria since April 2017 has resulted in the creation of a broadly market clearing foreign exchange market. Cowan questions whether Algeria and Angola can follow in this path.
Additionally, for the fixed exchange rate oil exporters, the problem has been that the required fiscal adjustment has been put off.
Meanwhile, Cowan says that, over the last few years, Africa has had two “fiscal delinquents” – Ghana and Zambia – but now there is perhaps a third – Kenya.
“What we have seen with Ghana, in particular, is that historically (especially in 2016) they have lost control of the fiscal in a run-up to an election. However, the current government has been correcting the issue and brought the fiscal deficit down to about 5.2% of GDP, which is not bad,” he elaborates.
Cowan further explains that Ghana overprojects its revenue.
Ghana has predicted revenue growth to be 20%, but Cowan notes that the country would need a (real) 30% to 35% increase in revenue to meet its target of the fiscal deficit lowering to 4.2% of GDP.
Further, Citibank is confident that the Central Bank of Nigeria will seek to try and maintain naira stability of the Nafex market leading up to the February 2019 national elections.
Currently, the focus is on rebuilding foreign exchange reserves, which have risen from a low of $30.3-billion at the end of May 2017 to $42.5-billion at the end of February.
“After the elections, we will monitor Nigeria’s commitment to allow a more flexible Nafex rate and to run a more orthodox monetary policy,” Cowan points out.
He says Citibank remains confident that there will be a rebound in overall growth in Africa, especially in sub-Saharan Africa, this year. “Governments need to push ahead with structural reforms to push up growth rates to higher levels.”