The global economy appears to have turned the corner and is strengthening. However, US and eurozone problems are deep seated and will take years to resolve particularly in the latter, which will remain an area of concern for sub-Saharan Africa (excluding South Africa) economies that hope to export greater levels of produce to help fund domestic development.
Nonetheless, strong real growth is likely to remain the norm in key economies in sub-Saharan Africa in 2014 and beyond. Although nearly all countries expanded in 2013 (only Central Africa Republic (CAR) and Equatorial Guinea contracted while Swaziland recorded no growth), some were adversely affected by weakness in the Eurozone and key emerging markets.
Economic policies are likely to continue improving, which will help underpin growth, as will increased political stability, which will create a more attractive business operating environment.
There are six main risks facing the region. In isolation, each poses a serious threat to growth if realised. The risks highlight some of the potential challenges that could derail growth and compound the day-to-day challenges of managing key economies.
1. Spillover from eurozone crisis
There are six major eurozone problems that could spillover and affect sub-Saharan Africa. Euro is at risk of resembling Japanese Yen in 2000s – a strong currency but weak economy. From a Middle Africa perspective this is worrisome because ongoing eurozone problems will continue to reduce trade and weaken capital inflows. Moreover, the artificial appreciation of the EUR against the USD increases exchange rate volatility, which could impact UEOMOA and CEMAC international trade transacted in USD.
2. Slowing growth in China
Recently, real GDP growth has been slowing steadily, due to domestic and external factors: domestic factors have seen a tightening of credit policies; and external factors have seen weaker OECD demand for Chinese manufactures.
Slower growth in China is having a significant impact in sub-Saharan Africa, with the risk that US$150bn of bilateral trade in 2013 is likely to grow more slowly in 2014. This highlights the risk of relying too heavily on one trade partner. Moreover, slower Chinese growth and credit tightening could mean the end of a bullish global commodity market, which is likely to contribute to lower commodity prices.
This would have negative implications for export receipts and fiscal revenues for commodity exporters that trade heavily with China (such as most oil and mineral producers).
To learn more about the other four risks to watch in SSA this year, Download the Top Six Risks Report.
This report is brought to you in partnership with Ecobank Research.
Ecobank Research is the research team of pan-African Ecobank Group, and has been the recipient of the Best African Research Team award for three consecutive years – 2011, 2012 & 2013 – under the Africa Investor Index Series Awards. Ecobank Research is dedicated to providing the highest quality research for our clients to help them navigate the complex African marketplace. Our research team is probably the largest in any private financial institution that is dedicated purely to research on ‘Middle Africa’ and comprises a dozen analysts based in Ecobank’s affiliates in London, Paris, Abidjan, Accra, Lagos, Nairobi and Harare. We are passionate about Africa, and our team of seasoned analysts based across Ecobank’s 34-country footprint draws on its extensive local knowledge to provide insights for clients and identify investment opportunities and strategies. Our focus is on Middle Africa – the region between North Africa and the Rand Zone, which has the richest potential for growth but is poorly understood. We produce regular market updates, briefing notes and detailed studies on the region’s macroeconomics, currencies, fixed income, equities, commodities and trade. We also have a research hub co-ordinating LocalKnowledgeAfrica™ the research team’s bespoke advisory and research initiative serving corporate clients in Africa and world-wide.
