Africa’s short-term growth prospects remain favourable, but there are clear regional discrepancies
The global economy faced more volatility at the start of the year, driven by
signs of a slowdown in world GDP growth, marked dovish U-turns on the monetary
front, uncertainty over the US-China trade spat and Brexit. But Africa’s
short-term prospects in general remain encouraging, with West Africa in
particular set to do well.
Southern Africa, however, continues to struggle, with the two largest economies
in the region still performing poorly. South Africa is plagued by domestic
issues related to policy uncertainty, credit rating risks associated with debt
sustainability at the SOE level, power outages and labour unrest. Angola, meanwhile,
is still grappling with lower oil prices, with the economy contracting for a
third straight year in 2018. North Africa has again witnessed a flare-up in
protest action, leading to regime changes in Algeria and Sudan, while fighting
in Libya has escalated.
While Africa’s prospects remain broadly favourable, some economies are more
exposed to global headwinds. A key transmission mechanism is Africa’s close
ties with China, especially in terms of trade. African countries whose export
growth is highly correlated to China’s import growth (those for which the
coefficient is larger than 0.9) include Algeria, Angola, Gabon, Nigeria, South
Africa and Zambia. The markedly dovish shifts by the Fed and the ECB,
meanwhile, provide some reprieve, boosting appetite for high-yielding debt
offerings. However, this could derail much-needed fiscal consolidation efforts
and raises medium-term debt sustainability concerns.
Countries such as Egypt, Ghana and Zambia all still run fiscal deficits in
excess of 6% of GDP, while their interest payments as a share of revenue exceed
30%. Egypt and Ghana have already issued substantial amounts of Eurobonds in
2019 Q1.
Nigeria: isolated giant
Growth hit 2.4% in Q4 and the non-oil economy expanded by 2.7%. Although oil
pipeline leakages present downside risk, leading indicators point to a solid
start to the year, and FX liquidity risks have eased off as reserves benefit
from robust foreign appetite for domestic debt. This prompted an easing in
monetary policy, which together with the new minimum wage will support consumer
demand.
Nigeria’s growth is forecast to rise to 2.6% in 2019, but is this enough? The
short answer is no. GDP growth is catching up with population growth, but still
lags behind labor force growth. The unemployment rate has increased almost
threefold since 2014. The last four years are characterised by delays in
passing the budget, ineffective fiscal expenditure, fuel shortages and limited
progress on the Petroleum Industry Bill. While President Muhammadu Buhari successfully
campaigned for re-election on the theme of ‘Next Level’, a marked improvement
in policy during his second term seems unlikely.
The fintech opportunity
In Nigeria only 39% of the adult population had a bank account in 2017. It
is lagging behind a large number of its African peers, and there is significant
scope to reap the benefits of increased financial sector depth and coverage,
including shifting people to the formal economy, improving access to finance
and supporting SME development. Many countries on the continent have employed
financial technology to bridge this gap.
The IMF has labelled fintech a game changer for SSA and notes that countries
such as Kenya now represent global leaders in the mobile money space. But is
there a mobile money opportunity in Nigeria? A look at mobile penetration rates
suggests so, with Nigeria rivalling the likes of Kenya. The size of the
Nigerian mobile market, the largest in Africa, makes the opportunity even more
appealing. Unfortunately, Nigeria has yet to take advantage of this
opportunity.
According to the IMF, Nigeria only registered 447 mobile money transactions per
1,000 adults in 2017, compared to Kenya’s 52,000. There have been some positive
developments on this front. The Central Bank of Nigeria recently launched
Payment Service Bank (PSB) licences, allowing telecom firms to directly offer a
limited set of financial services.
While the way forward is still uncertain with negotiations ongoing, media
sources seem optimistic, highlighting that the likes of MTN and Airtel are
considering aggressive moves in the mobile money space.
Cobus de Hart is a chief economist at Oxford Economics in West and North Africa
Culled from the Economia