Sub-Saharan Africa will not be left unscathed by the current economic turbulence in the US and Europe.
“It has been downhill for the global economy since financial markets tumbled in August . . . on the back of economic data releases that revealed weaknesses in the economies of the West,” says Yvonne Mhango, an analyst at Renaissance Capital, in a recent report.
“Revisions to the US GDP numbers revealed that the 2008 recession was more severe than initially estimated and that the recovery thereafter was weak. The US economy only grew by 1.1% in [the first half of 2011], in annualised terms, implying that quantitative easing had not been as effective in kick-starting the economy as the Federal Reserve would have liked. Moreover, the heavily indebted EU is not growing – and may never grow strongly if its debt is not restructured. Concerns about the funding of European banks add to the poor sentiment in the EU.”
In August Fitch Ratings said that Sub-Saharan Africa saw a slowdown in economic growth to 2.8% in 2009 before a robust recovery of 5% in 2010. Fitch noted that the only other two regions that experienced a slowdown in growth during the financial crisis, rather than a recession, were Asia, and the Middle East and North Africa.
However, in its recent Global Competitiveness Report 2011-2012, the World Economic Forum said that Africa’s resilience to the global financial crisis was likely not due to strong productivity fundamentals, but that it can rather be attributed to “limited integration of most of the region’s economies, especially their financial markets, into the global economy. Although this fact sheltered African economies over the shorter term, it will hold back their development over the longer term.”
According to Mhango, Sub-Saharan African countries will be affected by the current downturn, although they are still likely to outperform more developed markets.
She says that some African countries, such as Kenya and Zimbabwe, have little fiscal space to stimulate sectors that would be adversely affected by a global recession.
Lower commodity prices are expected to lead to a slowdown in growth in commodity-rich countries. “The demand slump in developed markets has triggered a softening in commodity prices,” says Mhango. “This implies that growth in Sub-Saharan Africa’s commodity-rich countries, including oil exporters (Nigeria and Angola) and producers of metals and minerals (Zambia and Botswana), may be tempered.”
Even though the West’s demand for Africa’s exports will fall, the effect of this will be partially offset by other emerging markets’ sustained appetite for commodities, particularly China.
Mhango says that lower prices will also improve the growth outlook for Sub-Saharan Africa’s net oil importers, such as Kenya, which were previously constrained by a high oil price. The recent surge in the price of gold, considered a safe haven during turbulent times, will also benefit Africa’s big gold exporters such as Ghana and Tanzania.
As a result of weaker demand from the developed world, African consumer goods companies focusing on internal demand, are likely to outperform export orientated industries.
African economies heavily reliant on tourism, such as Kenya, Tanzania, Mauritius and Namibia, will also suffer from a decline in visitors from the US and Europe. “We expect the recovery in Westerners’ demand for safari and beach holidays in Sub-Saharan Africa to be tempered on the back of a weakening growth outlook,” says Mhango.
In addition, a moderation in aid inflows should be expected. “Unsustainable debt positions in the economies of Sub-Saharan Africa’s biggest donor countries have forced them to implement stringent fiscal austerity measures. In this environment, development aid is forced to take a back seat, particularly in countries where governance is a concern. Donors are expected to sustain their commitments, but are unlikely to scale-up aid.”