Sub-Saharan Africa to stay on recovery path, rate cuts on the horizon

Sections of works being undertaken at the Thiba mega dam in Kirinyaga East Sub-County meant to boost rice farming in the county. July 21/2019 [Munene Kamau, Standard]

Sub-Saharan Africa will stay on its recovery path next year provided heavyweight economies punch better, a Reuters poll found, but it will still grow below potential for a part of the world with a growing population.

A poll of 15 analysts and economists taken this week showed Nigeria, Africa’s biggest economy, would grow 2.6 per cent next year and Kenya would grow 5.8 per cent. In both cases this is 0.2 percentage points slower than thought in April. “Growth should gain slightly more traction next year, supported by a tendency towards looser monetary policy which will support consumption,” said Cobus De Hart, chief economist for north and west African countries at NKC African Economics.

Nigerian economic growth accelerated but Kenya’s slowed in the first quarter of the year compared to the same time last year. However, even if Ghana’s growth slows as expected to 6.1% in 2020 from 6.5% this year, next year’s performance would still be faster than the six per cent predicted in the last survey.

Interest rates - in Ghana at 16 per cent, Nigeria at 13.5 per cent and Kenya at nine per cent - are expected to be left unchanged next week, although Nigeria will probably ease in September and the other two next year.

Other major global central banks look set to ease policy soon. Economists largely agreed Sub-Saharan Africa’s growth - which the International Monetary Fund forecast in April would grow at 3.5 per cent this year - would stay on the recovery path next year. South Africa’s Reserve Bank joined other emerging market banks in cutting interest rates on Thursday and De Hart said South Africa would perform slightly better and act as less of a drag on regional growth. He included Angola, the third biggest economy in Africa when excluding northern countries such as Egypt and Algeria, as another heavyweight if Nigeria disappoints.

South Africa - where growth is expected to accelerate to 1.4 per cent next year from 0.7 per cent in 2019 - has been, alongside Nigeria, a drag on the continent as combined they make up about 50 per cent of Africa’s economy. “West Africa is picking up pace nicely, not so much Nigeria though where the rebound is now again looking more fragile. East African growth is seen slowing slightly but will remain very robust from a regional perspective,” said De Hart.

Zambia has also not been performing well due to a huge debt problem that has weighed on growth prospects. Zambia is expected to grow 3.3 per cent next year, 0.3 percentage points higher than this year but slower than the almost four per cent, it grew last year. African leaders launched a continental free-trade zone on Sunday after Nigeria finally signed up.

If successful, it will unite 1.3 billion people and create a $3.4 trillion economic bloc, ushering in a new era of development.

But infrastructure bottlenecks have often frustrated efforts to develop an African manufacturing base similar to the Asian tigers.