Africa’s growth outlook – more of the same

The IMF this week published the April 2012 edition of its World Economic Outlook (WEO) report, which looks at both the outlook for the global economy as well as region specific analysis.

Looking at sub-Saharan Africa, the IMF notes that the region recorded another year of strong growth in 2011, expanding by 5%, and was one of the regions least affected by the developed world’s financial turmoil and deterioration in the global outlook.

The region’s resilience reflected a number of factors, including its relative insulation from financial spillovers emanating from the euro area. The region’s limited financial linkages with Europe helped protect it from the turmoil in late 2011, with South Africa a notable exception due to its higher correlation with developed markets – there it led to rand depreciation and stock price volatility.

Furthermore, the diversification of exports toward fast-growing emerging markets has reduced the region’s trade exposure to Europe. According to the IMF, exports to the euro area now account for only one-fifth of the region’s exports, down from two-fifths in the early 1990s. High commodity prices also benefited the region’s commodity exporters and boosted investment in natural resource extraction.

Quoting from the report, South Africa is projected to expand by only 2.75% this year, 1 percentage point less than projected in the September 2011 WEO. This reflects deterioration in the external environment, weaker terms of trade, and a general loss of business confidence.

Growth is also expected to slow in Botswana to 3.75% due in large part to weaker global demand for diamonds.

After the one-time boost from the start of oil production last year, Ghana’s growth is set to moderate to a still robust 8.75%.

Growth in the oil-exporting economies is expected to accelerate to 7.25% in 2012 from 6.25% last year, largely because new oil fields coming on-stream in Angola are expected to boost GDP growth there to 9.75% this year.

In Nigeria, non-oil GDP growth is projected to ease somewhat this year, reflecting tighter fiscal and monetary policies, although with some rebound in oil output, overall GDP growth should remain about 7%.

Among the low-income economies, a rebound in agricultural output and in hydroelectricity generation following last year’s drought is expected to support growth in Kenya, which is projected to grow by 5.25% in 2012 and by 5.75% in 2013. But power shortages and macroeconomic tightening to stem inflation pressure are expected to temper growth in Uganda and, to a lesser extent, Tanzania.

The fastest growing economy will be Sierra Leone, projected to grow by 35.9%, though from a low base, followed by Niger with 14% growth, and Angola in third with the aforementioned 9.75%.

The laggards are forecast to be anchored by Swaziland, (-2.7%) and The Gambia (-1.7%), which will be the only two to record negative growth.

The IMF reiterates that rebuilding policy buffers remains a priority in most economies in the region, as while sub-Saharan Africa does remain relatively well insulated from the global events, a poor euro crisis resolution scenario would, for example, reduce sub-Saharan Africa output by 1% relative to the baseline scenario.

It is more of the same, then, in terms of the positivity surrounding Africa’s economic growth trajectory, with the ‘top-down’ analysis providing support to corporate earnings which in many cases have continued to grow well beyond the growth in GDP.

Imara is an investment banking and asset management group renowned for its knowledge of African markets.