Africa (Commonwealth) _Africa faces economic difficulties this year, but some of the continent’s brightest sparks are casting a more positive light. According to the International Monetary Fund, Sub-Saharan Africa is expected to have six of the world’s top ten performing economies in 2024.
Their smaller size would not compensate for South Africa and Nigeria’s underwhelming results, which account for two-fifths of Africa’s $2 trillion GDP. However, when they work together, they may make a difference in a region still plagued by poverty and injustice.
Sub-Saharan Africa’s economic prospects are improving, according to African Economist Yvonne Mhango. Eight of the region’s top ten largest economies, which account for another 40% of regional GDP, will expand at a healthy 5% on average. These include Ivory Coast (6.6%) and Tanzania (6.1%). The two nations have successfully diversified their economies and attracted international investment.
As a result, the IMF expects regional growth to modestly accelerate to 4% in 2024, up from 3.3% in 2023. While the two heavyweights are unlikely to produce more quickly in the short term, both Nigeria and South Africa are pursuing changes that may offer long-term advantages. The IMF expects Nigeria’s growth to accelerate to over 3% this year and next, while South Africa is expected to rise by 1.8% and 1.6% over the following two years, up from a modest 0.9% in 2023.
Big picture. Africa’s external climate is harsh, according to Razia Khan, Standard Chartered Bank’s senior economist for Africa and the Middle East. However, changes are important, and they will be central to the growth reversal that we predict in both South Africa and Nigeria, he said.
Nigerian President Bola Tinubu has taken strong steps to reform the country’s foreign currency rules and eliminate expensive gasoline subsidies. South Africa, plagued by an energy crisis, is now making cautious headway toward increasing electricity supplies, which is anticipated to continue.
The essential aspect for South Africa is that we have most likely hit a tipping point, according to Khan. The years ahead should see faster development. And that is underappreciated.
Despite probable uncertainties ahead of this year’s elections. The vote, which is expected to be place in April or May, might lose the ruling African National Congress its absolute parliamentary majority. However, it is projected to remain the largest party in government, and the ballot will not have a significant influence on policy, she added.
Analysts, however, remain skeptical about Africa’s foreseeable future. The recovery in GDP is coming from a low foundation following the region’s failures during the epidemic, which strained state budgets and left several nations with huge debt loads.
Those have already resulted in defaults in Ghana, Zambia, and Ethiopia, with the IMF warning that additional countries are at risk, and access to global capital markets is essentially restricted.
Moody’s Investors Service rates African sovereign credit negative due to increased debt-refinancing risks and expectations of weaker development in China, which will weaken demand for the region’s commodities exports.
Aurelien Mali, senior credit officer at Moody’s Sovereign Risk Group, says that Africa’s debt-to-GDP ratio has climbed to 60% on average. That is back to the crisis levels of the early 2000s, which sparked debt forgiveness for the poorest countries.
Many of these nations have been running dual deficits — fiscal and current-account deficits — in the post-Covid era, he added. They require external money at a time when there are a large number of maturities approaching.
According to Moody’s, around $5 billion of eurobonds in Sub-Saharan Africa will mature in 2024, followed by more than $6 billion in 2025. That excludes obligations owed to bilateral creditors like China or multilateral lenders such as the IMF and the World Bank. No African government has entered the eurobond market since the US Federal Reserve began rapidly hiking interest rates in 2022.
Analysts do not expect market access to reopen for most African sovereign issuers this year, unless the Fed substantially decreases interest rates, which may help bring borrowing costs back down to more reasonable levels. Optimism that the Fed will move fast to decrease borrowing prices in 2024 has diminished in recent weeks, despite indicators that the US economy remains strong.
Despite the current surge, many of these nations remain locked out of the market. According to Patrick Curran, senior economist at Tellimer Ltd., when their debt matures, they must discover innovative methods to roll it over in order to meet their commitments. Countries, notably in Africa, but in frontier markets generally, will be particularly susceptible as long as interest rates remain close.
