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AFRICA’s two economic giants – South Africa and Nigeria – are ailing economically, and the pain they have been experiencing over the past 18 months is expected to carry forward into 2017, data from the IMF shows.
Their economic health is important, far beyond their own borders. Together, the two account for half of sub-Sahara Africa’s GDP. They are major trade partners to the countries in their respective regions, as well as wielding significant political and diplomatic clout in the continent as a whole. One could argue that they set the barometer for how Africa’s investment climate is perceived more broadly.
But the two are expected to post some of the most sluggish growth figures this year. Nigeria’s economy is expected to grow by just 0.6% this year, squeezed by persistently low oil prices in the global markets, the country’s main export earner. The economy has also been hurt by chronic power scarcity, and a foreign currency shortage worsened by a 15-month currency peg that was partially lifted in June.
In South Africa, policy uncertainty is making it more difficult to adjust to weaker terms of trade – China was one of South Africa’s major trade partners, and the rebalancing of the Chinese economy more towards domestic spending means that it has less demand of South Africa’s mineral exports. GDP growth in South Africa will only be in the region of 0.8% this year.
The ruling party, the African National Congress also suffered significant losses during municipal elections in August, and will try to appease its traditional support base – black, working class and rural voters – possibly through expanded social welfare programmes. But there’s a pro-business faction of the ANC that is gaining steam, and if they manage to wrest control of the ANC, it is conceivable that President Jacob Zuma could be recalled in 2018.
Angola is similarly adjusting to a sharp drop in oil export receipts, and will only experience feeble GDP growth this year. President Jose Eduardo Dos Santos has said he will not run for re-election in August, but will probably spend the rest of the year grooming his designated successor, defence minister Joao Lourenco.
He will need Lourenco to keep power in the hands of the ruling MPLA party, and also to secure the complex patronage network he has spent several decades building, with his own family at the top, which has interests in the state-run oil company and the country’s sovereign wealth fund.
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Among oil exporters, only Gabon and the Republic of Congo will continue to grow robustly, driven by increased government spending in infrastructure and social projects.
By contrast, several of the region’s non-resource exporters, including Cote d’Ivoire, Ethiopia, Kenya and Senegal are expected to continue to expand at more than 5% a year, benefitting from low oil prices and boosted by public and private investment.
Cote d’Ivoire will post an enviable 8% GDP growth rate, supported by investments both public and private, with the rapid developments in construction, transport, and finances sectors. Since 2014, the performance of agriculture has notably improved.
The international environment has also been favourable to Cote d’Ivoire with the persistence of higher prices for its main exports (cocoa and coffee), the recovery in the European Union – the country’s main trading partner, and the depreciation of the CFA Franc against the US dollar.
In Ethiopia’s case, protests and skirmishes between opposition groups and government security forces in the latter half of 2016 posed the greatest challenge to Addis Ababa in decades. Authorities responded by instituting a massive crackdown, including a six-month state of emergency that will continue into 2017.
If the flare-ups continue, the government will most likely attempt to extend the heavy-handed security measures to try and contain the unrest. But this will come at a financial and political cost, and may threaten the durability of the ‘state-led’ development model that Addis Ababa has spent years carefully cultivating.