Sub-Saharan Africa Economies to See V-Shaped Rebound in 2021– ARM
The Sub-Saharan African region is expected to see a V-shape rebound in 2021, analysts at Asset & Resource Management (ARM) Securities Limited have projected.
In its macroeconomic outlook for the year, ARM noted that at the start of the second half of 2020, it had expected growth in the Sub-Saharan Africa Economies to remain bleak over the rest of the year. According to ARM, its expectation was largely hinged on the impact of travel restrictions, border closures and nationwide lockdown on the economies.
“This was the case as whilst there were eases in GDP contractions across the region, economies still reel from the impact of the COVID-19 pandemic”, it added.
It noted that regional activity dropped significantly, especially in the second quarter of 2020 due to the negative impacts of the COVID19 pandemic on tourism, commodities, amongst other sectors.
ARM said recovery is however expected in 2021, hinged on improvements in commodity prices and exports. The firm added that recovery is however expected to be gradual and uneven across the region as there is relatively limited policy space within which to sustain fiscal expansion.
“This means that concerns surrounding debt sustainability cap the potential for further fiscal intervention”, it added. Recalled that the International Monetary Fund, IMF, forecasts the SSA’s Real GDP to grow by 3.1% in 2021 from negative growth of 3.0% in 2020.
“With local consumption and crude oil prices in 2021 expected to improve, Middle East, North Africa (MENA) countries should recover in 2021. Oil-exporting countries are expected to witness increased energy demand, compared to 2020, while tourism and air travel picks up”, ARM stated.
Meanwhile, the report also noted that the IMF expects oil exporters to grow by 3.3% in 2021 (-6.0% in 2020). It was noted that countries slipped into recession across the SSA region on account of the outbreak of the COVID-19 pandemic.
The International Monetary Fund is expecting Nigeria’s economy is expected to grow by 1.7% in 2021 from the estimated negative 4.3% initially projected.
Following the relaxation in lockdowns and the gradual recovery in crude oil prices, the 2020 contraction is expected to be reverted. But ARM Securities explained that Nigeria’s weak fundamentals make it highly vulnerable to external shocks.
ARM Securities said rising inflation, insecurity, unemployment/underemployment, FX shortages, and other structural elements are poised to slow down the West-African nation’s economic recovery.
As the Sub-Saharan Africa economies slipped, Nigeria’s economy plunged into a recession in the second half of the year as its GDP contracted by 3.62% in Q3:2020.
Considering a GDP contraction of 6.10% year on year recorded in Q2:2020, the economy officially plunged into its second recession within five (5) years.
ARM recalled that the contraction in Q3:2020 was off the back of a 13.89% decline in the oil sector and a 2.51% decline in the non-oil sector. The negative growth in oil GDP was reflective of the fall in daily crude oil output to a four-year low of 1.67MMbpd by the National Bureau of Statistics (NBS).
“As Nigeria had to adhere to the OPEC supply cuts agreed in April, taps had to be closed, limiting production levels in the country’s upstream”.
ARM said the non-oil economy’s contraction reflected the impacts of the COVID-19 pandemic on the economy, as negative growths were recorded in transportation and storage (- 42.98%), accommodation and food services (-22.61%) and education (-20.74%).
Over in South Africa, the easing of the imposed lockdowns due to the COVID-19 pandemic mirrored in its Q3:2020 GDP, as it recorded ease in contraction to -6% (from -17.5% in Q2:2020).
“Now in a recession, impacts of South Africa’s high unemployment rates and declines across sectors were only exacerbated by the impacts of the pandemic”, the report stated.
On a QoQ basis, GDP grew by 66.1% in Q3:2020, reflective of the V-shaped recovery in consumer spending.
This came as 137% quarter on quarter increase in Trade, 79.3% quarter on quarter improvement in Transport and Communication and 58% growth in Electricity, gas, and water drove GDP.
“Like in Nigeria, oil constitutes a huge chunk of Angola’s government revenue, rendering its economy vulnerable to shocks in the global oil market”, ARM stated.
It observed that the decline in oil prices strained its economy, recorded an 8.8% contraction in GDP in Q2:2020. Analysts said this marks the fourth consecutive quarter of decline in GDP growth.
Explaining the narrative further, ARM said the lower oil exports and receipts for Angola influenced its Fitch credit rating, as the agency downgraded it to ‘CCC’ in September.
In response, fiscal and monetary measures have been put in place to mitigate the adverse impacts of the COVID-19 pandemic such as a 12-month VAT credit for imported goods, deferred payment option for social security contributions, as well as provision of liquidity support to banks.
In addition, the International Monetary Fund (IMF) provided $1 billion in lending to Angola in September to help cushion the effects of the pandemic on the economy. In other economies across the SSA, the pandemic has been shown to have had a significantly negative impact on most sectors.
Ghana recorded its first quarterly negative growth in about three (3) decades as its Q2:2020 GDP contracted by 3.2%. This set up the economy to slide into a recession as the West-African nation recorded a contraction of 1.1% in Q3:2020, Over in Egypt, economic growth came to a halt in the second quarter of 2020, as GDP contracted by 1.7% in Q2:2020 – the first quarterly contraction since Q1:2011.
In Q3:2020, the economy expanded by 0.7% as lockdowns were eased and unemployment levels slowed down to 7.3% (vs 9.6% in Q2:2020). The Egyptian economy remains subdued by the impacts of the pandemic and low oil prices, but sustained recovery is expected for the North African nation, especially considering the stimulus packages and accommodative monetary stance employed by its government.
In November, the Central Bank of Egypt (CBE) cut key interest rates for a second consecutive time, bringing the overnight lending rate to 9.25% and the overnight deposit rate to 8.25%. Rates were left unchanged at its last Monetary Policy Committee meeting in December.
With lower output from Egypt’s manufacturing and tourism sectors, real estate tax relief was given to players within those industries. ARM stated that these two industries contribute about 30% of the Egyptian economy and should drive growth when healthy.
The Egyptian Ministry of Finance also issued a guarantee of £3 billion to be provided to the hospitality and tourism industry.
To ease the adverse impact of COVID-19 on the economy, stimulus packages amounting to EGP 100 billion was announced in May 2020 for distribution across various sectors. The IMF projects real GDP growth of 3.5% YoY in 2020, and 2.8% YoY in 2021. Tunisia continued to report negative growth in GDP after it went into recession in Q2:2020.
Second-quarter GDP contracted by 21.7% YoY. Just like other tourism-dependent countries such as Seychelles and Morocco, Tunisia’s economy took a beating due to travel restrictions. The economic slowdown followed a contraction in the hotels, cafes, and restaurants sector (-33.6% YoY).
Transportation (-25.5% YoY) and manufacturing (-3.2% YoY) also recorded negative growth in Q2:2020.
Following the easing in lockdowns initially imposed due to the COVID-19 pandemic, Q3:2020 posted ease in GDP contraction to -6% YoY. The IMF projects Tunisia’s Real GDP growth to come in at -7.0% YoY in 2020, and 4.0% YoY in 2021.
Over in South Africa, the IMF forecasts growth of 3.0% in 2021 (-8.0% in 2020). Recoveries in manufacturing and mining are expected to drive economic growth in 2021. South Africa’s gold reserves are also expected to continue to benefit from its safe-haven status.
Unemployment levels, driven to a record high of 30.8% in Q3:2020, is however expected to limit household income, and subsequently consumer spending.
Also, with its expanding debt to GDP ratio, South Africa’s fiscal space for government spending narrows, hence potentially limiting economic growth in 2021.
Angola’s economy is set to partly rebound, as the IMF forecasts a 3.2% growth rate in 2021 (-4.0% in 2020). This is hinged on easier supply cut quotas from OPEC and more favourable oil market conditions than in 2020. With local consumption and crude oil prices in 2021 expected to improve, MENA countries should recover in 2021.
Oil-exporting countries are expected to witness increased energy demand, compared to 2020, while tourism and air travel picks up. The IMF expects oil exporters to grow by 3.3% in 2021 (-6.0% in 2020).
In line with this, the world’s largest crude oil exporter, Saudi Arabia is projected to grow by 3.1% in 2021 (-5.4% in 2020). Elsewhere, economic growth of 3.2% is expected in both Iran and Algeria – the strongest in the region.
With a new US president in Joe Biden, expectations of more diplomacy and subsequently, ease in sanctions on Iran could raise its oil production and aid economic growth. This could however be a double-edged sword for the region, as Iran has not been a part of the OPEC supply cuts agreement.
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Sub-Saharan Africa Economies to See V-Shaped Rebound in 2021– ARM
