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SUB-SAHARAN AFRICA is at a crossroads. Capital Economics expects regional growth to dip to a 16-year low in 2015, largely due to flagging commodity and energy prices. Two key oil exporters, Nigeria and Angola, the region’s largest and third-largest economies, will struggle most, the London-based economic consultancy says.
Yet this still leaves the region in a far better state, in growth potential as well as a sense of hope and momentum, than almost anywhere else. China is slowing; the eurozone remains in turnaround mode; even the US is struggling to make a critical transition to tighter monetary policy. By contrast, the economy of Sub-Saharan Africa is still projected by the IMF to expand by 4.5% this year, against 5.8% in 2014.
Some countries will benefit more than others from the mixed global and regional economic picture. Kenya is singled out by the IMF as a shining example of optimism, good planning and fortitude in the face of attacks by militant groups. The economy expanded by 5.3% last year, and is set to grow by 6.9% this year, the government in Nairobi said, thanks to higher exports of fresh produce and textiles, and rising investment in construction and key road and rail projects.
On the frontier
Over the next year or two, many growth markets are likely to be frontier states or smaller emerging markets, experts say. Cobus de Hart, an economist at NKC, highlights the potential across the East African Community, notably Rwanda, Tanzania, Uganda and Kenya, along with Ethiopia and coming energy power Mozambique. “All are expected to register solid growth rates this year,” he says. “Over the long term, the demographic dividend still represents a key advantage.” This stems, he adds, from a growing middle class and the region’s potential as a future manufacturing and industrial hub, as rising salaries in Southeast Asia force companies to look to economies with lower input costs.
“More and more African countries are desirous of bolstering their manufacturing base and moving away from the old paradigm of essentially being mere exporters of raw materials,” says Albert Essien. “This is Africa’s time to produce…and the opportunity for investing in manufacturing and in the transformative sector in Africa is huge. I cannot emphasise this enough.”
Others highlight the potential in specific states. Uganda’s focus on improving and investing in infrastructure is paying dividends, the World Bank says, with growth expected to hit 5.6% this year, from 4.5% in 2014. Says Vladimir Sklyar, head of Russian research at Renaissance Capital, which has offices and assets across the region: “Uganda has fixed its power and transmission grid and allowed the market to set tariffs. Private players are piling into the market, with $100 million invested in the power and transmission sector each year. It’s been nothing short of transformational, with fewer blackouts and brownouts. It’s a classic example of how to get your system to work properly.”
Emerging power houses
Some nations can expect super-high rates of economic growth this year and next. “Sub-Saharan Africa will continue to have some of the world’s fastest growing economies in 2015, despite the recent collapse in commodity prices,” says Ecobank group CEO Essien. “We forecast a strong rebound in South Sudan [tipped to grow by 19% this year] and Sierra Leone [10%], both of which are emerging from crises.” Essien also points to “continuing strong growth” in the Democratic Republic of the Congo (DRC), Ethiopia, Mozambique, and Côte d’Ivoire, economies projected to grow by upward of 8% this year. Essien adds: Despite rising political and security risks across SSA, and the weakness of prices for the region’s commodity exports, we still expect the region’s compound annual growth rate between 2014-2019 to total 7%, only marginally below Asia and the BRICs nations, and well above the OECD average.”
The DRC in particular will remain a fascinating story for years to come, one vital to Sub-Saharan Africa’s prospects. Get it right, investors, politicians and business leaders have long said, and many of its other long-standing problems will begin to ebb, notably overland transport issues and a deficit of intra-regional trade. Angus Downie, head of economic research at Ecobank, flags up the DRC’s potential, pointing to a “strong rise in mining activity and increased agricultural output”, with economic activity set to expand by around 9% this year. In a March 2015 report, Ecobank pointed to eight nations with potential to “significantly transform” the region, thanks to high foreign exchange reserves, low inflation and debt, improving infrastructure and the right demographics. These were Nigeria, Kenya, Côte d’Ivoire, Mozambique, Angola, Rwanda, Tanzania and Ethiopia. Ethiopia is seen as a beacon of hope by most analysts, with Dennis Dykes, chief economist at South African lender Nedbank, flagging up the success of its reform-minded and “proactive” government.
Even some of the concern about Africa’s largest economy, may be overdone. Nigeria faces challenges, not least lower oil prices and the threat of militancy. But cause for cheer came in the March 2015 general election, with the first peaceful presidential transfer of power, from Goodluck Jonathan to Muhammadu Buhari, in the country’s history. “Nigeria now looks a lot more optimistic,” says Razia Khan, chief economist for Africa at Standard Chartered. “A new government is expected which will accelerate the pace of reform. In terms of investor interest in Africa, we see Nigeria stealing the show. It has scale, it promises transformation. Despite a still-difficult backdrop because of weak oil prices, much is expected in Nigeria.”