Sub-Saharan Africa (SSA) will likely be the among world’s slowest-growing regions in 2021. The size of the economies of five key SSA countries (Ethiopia, Ghana, Kenya, Nigeria, and South Africa) will be 6.6% smaller than the pre-pandemic long-run trend-based estimate by the end of 2024.
S&P Global Ratings stated this in its recently released report on emerging markets with a focus on Sub-Saharan African Economies. The report titles Emerging Markets: Pandemic’s Fallout and Existing Challenges Restrain Sub-Saharan Africa’s Recovery takes a critical look at the macroeconomic environment and the impact of the COVID-19 pandemic on the SSAs.
Pandemic-induced GDP growth shock has hit the SSA sovereigns’ fiscal metrics; an expected slow recovery will continue to contribute to existing challenges in the region. SSA corporations are recovering, but remain subject to longstanding red tape and government failures, which have been amplified by the pandemic and are sources of operational friction.
SSA banking sectors’ growth prospects remain subdued due to the pandemic’s lingering impact, profitability levels may recover to pre-crisis levels after 2022, while credit losses moderate.
Kenya and Ghana will lead the way as growth rebounds to 4.4% and 4.5%, respectively, in 2021, before inching past 5% on average in the next two years. Ethiopia, which was a growth leader prior to the pandemic, will see a 5.1% expansion in fiscal 2021-2022 (July 2021 to June 2022) following a mere 0.7% growth in fiscal 2020-2021, before picking up steam above 5% for the next couple of years.
Nigeria and South Africa round out with average growth rates in our forecast horizon that are respectively below and barely matching their population growth rates. On a per-capita basis, the post-pandemic growth looks to extend the six-year economic malaise prior to the pandemic for resource-rich South Africa and Nigeria.
Nigeria stands out as even more challenged given its vulnerability to terms of trade (the ratio between the index of export prices and the index of import prices) headwinds to investment and growth not only by the volatility of terms of trade but also by a more problematic deterioration of terms of trade in the last decade.
Year-to-date data indicate some upside risk to our GDP forecasts for Kenya, Ghana, Nigeria, and South Africa. In Ethiopia, the real GDP recovery appears to be more challenged by drought and issues around the Tigray conflict.
The rating agency stated that the expected recovery of the global economy and commodity markets, as well as easing of COVID related restrictions will cause the economic outlook for 2021 to be slightly more favourable for Nigeria, improving crude prices in 2021 should support the recovery, with GDP growth rebounding to 1.9% in 2021 and averaging 2.3% in 2022- 2024.
Stronger export earnings is expected to support the current account deficit which will likely fall to 1.2% of GDP in 2021 from 3.2% in 2020, shifting to a modest surplus of about 1.7% in 2023-2024.
Furthermore, the rise in oil prices will help the consolidated general government at the centre and at states level fiscal deficits to narrow to 5.0% in 2021 from 5.5% in 2020 and to about 4.2% in 2022-2024 while external financing gaps could emerge if economic assumptions weaken or if funding from official lenders or other sources is not as forthcoming as expected.
However, fiscal and external pressure will remain high over the next few years as Nigeria’s fiscal flexibility is constrained by very low levels of revenue.
Also, a tightly managed exchange-rate regime and high inflation limit the effectiveness of monetary policy transmission and constrain growth, while the banking sector remains vulnerable to asset quality problems, especially in the oil and gas sector while the government also increased its dependence on the central bank loans to fund its fiscal deficit.
Low tax collection was also identified as one of the largest constraints on Nigeria’s fiscal flexibility and a persistent myriad of security risks.
