DOHA: Sub-Saharan Africa (SSA) activity is strengthened and GDP growth is expected to rise from 3.1 percent in 2018, from 2.7 percent in 2017, the QNB said in its weekly "economic commentary" yesterday.
Given a large number of countries in the SSA, QNB said, it has focused its analysis on economies that are either outperformers or underperformers with regard to regional macroeconomic backgrounds.
The exploratory note is compiled by the two largest SSA economies, Nigeria and South Africa, which saw a sluggish growth despite the price recovery, and Ethopia and Ghana, which the QNB considers as regional champion growth.
QNB analysts noted that Nigeria and South Africa account for nearly 50 percent of GDP on the continent. Both countries are heavily resource-intensive economies and are struggling to deliver stronger growth from shocks to market prices by the end of 2014.
At that time, the nominal net exports of oil in Nigeria collapsed, while external revenues from platinum, iron ore and coal declined.
After the first outbreak in more than two decades of 2016 and a very slow 0.8 percent growth in 2017, Nigeria will be set to 1.9 percent economic expansion in 2018. The main drivers of recovery are the rise in oil prices, a more stable hydrocarbon product and the agricultural sector.
Greater oil prices support the surplus of current account and the narrowing of the fiscal deficit. In addition to issuing bonds and other portfolio inflows, this has contributed to the strengthening of external reserves and the maintenance of the new foreign exchange regime.
Prospects point to better performance in 2019, but growth is expected to remain humiliated at 2.3 percent. The risks have fallen to a negative position, as oil prices are expected to rise, and oil production disturbances pose a potential threat to the activities.
Despite higher commodity prices and new leadership motivating reform optimism and a business friendly program, the extension of South Africa has weakened in 2018. GDP growth is expected to slow down this year to 0.8 percent this year from 1.3 percent in 2017.
Weakness was driven by agricultural, transport and retail sectors, and recent three-month contraction even paved the country in the first technical recession since the outbreak of the major financial crisis in 2009.
Starting the structural account deficit, South Africa is vulnerable to foreign investors' feelings and is affected by the tightening of global financial conditions and FX turbulence in other emerging markets (EM). Larger portfolios portfolio overwhelmed, and the South African rand has so far declined by 16.7 percent compared to USD this year.
The scenario is positive for 2019. Recovery of the agricultural sector and weak fiscal policy should increase growth to 1.4 percent. However, the risks also slow down, as commodity prices are particularly vulnerable to the weakening of global growth and the normalization of monetary policy in key advanced economies may generate further pressure on the EM currency, forcing the central bank to tighten monetary policy.
Ethiopia and Ghana are the most important economic conquerors of the continent. Ethiopia is often called "China Africa" and has consistently been one of the fastest growing economies in the world since the early 2000s.
With deeply rooted political stability and a diverse and rich natural base, including crude oil and gold, Ghana has also shown long-term growth rates significantly above the SSA average.
Ethiopia will present another year of strong growth, with an activity that will increase by 7.5 percent in 2018. Foreign direct investment (FDI) in infrastructure and manufacturing continues to lead to rapid industrial expansion.
Robust domestic activity, driven by great infrastructure and investment costs, contributes to further internal and external imbalances. Export-oriented projects take longer to be included, while imports drop, and the budget balance worsens.
Trade and current account deficits of Ethiopia are expanding. But the government successfully financed part of the deficit with foreign capital, in particular foreign direct investment linked to new industrial parks and privatization programs.
Outlook for 2019 indicates a very strong growth of 8.5 percent. With lower labor costs than most African peers, Ethiopia is expected to continue attracting foreign investment to key job-creating sectors, such as textiles and footwear, which should underpin gradual progress towards a more export-oriented economy.
The Ghanaian economy has recovered, and it is expected that the growth in 2018 will calibrate to 6.35 percent, from fast 8.4 percent in 2017. The main growth drivers include hydrocarbon production and support from higher commodity prices, particularly oil and cocoa.
Fiscal deficits have risen, but current account deficits are tightened on the back of stronger external revenues. It is expected that growth will accelerate to 7.6 percent in 2019. The risks are lying in a negative position as commodity prices need to ease the touch of next year.
Despite the general recovery of growth, a major common concern for most countries in the SSA is the increase in foreign exchange indebtedness driven by demand for higher yields and huge investment needs for infrastructure and social development. Strengthening US monetary policy will increase refinancing and shifting risks in the SSA border markets.
Portfolio revenues were strong in the first half of 2018, with issued eurobonds. This adds last year's boom to sovereign editions in Africa. In the medium and long term, SSA's sovereigns should rely more on domestic and tax revenues to address the sustainable development of ecnomomics at risky levels.