Sub-Saharan Africa Likely World’s Slowest Region in 2021 – S&P

Sub-Saharan Africa Likely World’s Slowest Region in 2021 – S&P

Sub-Saharan Africa (SSA) is likely to be the world’s slowest region in the year 2021, Standard & Poor’s (S&P) global ratings economists said in a new report as Nigeria lag behind Ghana, Kenya, others in gross domestic products (GDP) projections.

In 2020, South Africa was the worst performer as the country’s GDP shed 7% followed by Nigeria with a 1.8% year on year decline while Kenya dropped by 0.1%. Despite the pandemic, Ethiopia economy jumped 6.1% and Ghana increased its position by 0.1%.

According to the report, key SSA countries, out of the 18 that S&P rates are likely to grow 2.7% on average this year and 3.1% the next year. It noted that Kenya and Ghana will lead the way as growth rebounds to 4.4% and 4.5%, respectively, in 2021, before inching past 5% on average in the next two years.

Sub-Saharan Africa Likely World’s Slowest Region in 2021 – S&P
Standard & Poor’s

Ethiopia, which was a growth leader prior to the pandemic, will see a 5.1% expansion in fiscal 2021-2022 (July 2021 to June 2022) following a mere 0.7% growth in fiscal 2020-2021, before picking up steam above 5% for the next couple of years.

S&P said Nigeria and South Africa round out with average growth rates in our forecast horizon that are respectively below and barely matching their population growth rates.

The rating agency noted that on a per capita basis, the post-pandemic growth looks to extend the six-year economic malaise prior to the pandemic for resource-rich South Africa and Nigeria.

“Nigeria stands out as even more challenged given its vulnerability to terms of trade – the ratio between the index of export prices and the index of import prices- headwinds to investment and growth not only by volatility of terms of trade, but also by a more problematic deterioration of terms of trade in the last decade”, S&P said.

It added that year-to-date data indicates some upside risk to GDP forecasts for Kenya, Ghana, Nigeria, and South Africa.

In Ethiopia, the real GDP recovery appears to be more challenged by a drought and issues around the Tigray conflict.

S&P’s economists concluded that even with an upward revision to its GDP growth forecast, the Sub-Saharan five (South Africa, Nigeria, Ghana, Ethiopia, and Kenya) will remain recovery laggards relative to much of the rest of the world with potential downside risks to growth in the second half of the year.

The report noted that their vaccination rates are lagging the rest of the world, with the region perhaps at the end of the queue when it comes to vaccine access.

The rating firm said the latest experience from the virus wave in India, where deaths skyrocketed and forced states to lockdown, hurting the economy that was beginning to recover, serves as a stark reminder that the risk of falling behind the growth curve from the pandemic continues to loom large for emerging and SSA economies even as the global economy rebounds.

Besides the ongoing pandemic risk, the overall risk to the region stems primarily from a lackluster global economic recovery and adverse agricultural conditions, S&P economists added in the report.  

It was noted that the pace of rebound is nowhere enough to bring the economies back to their pre-pandemic GDP trajectories. The size of the economy of Sub-Saharan five will be 6.6% smaller than the pre-pandemic long-run trend-based forecast by the end of 2024.

For the region as a whole, S&P said just as the degree of contraction varied across nations, the recovery will also be starkly different among them.

However, it highlighted that Tourism-reliant countries–islands such as Cape Verde, Mauritius, and Seychelles, as well as others on the mainland–will struggle to restore visitor numbers to 2019 levels at least until the pandemic is in the rearview mirror.

“For these countries, permanent loss in GDP level versus pre-pandemic path – as opposed to permanent loss in long-run trend potential growth of the economy through deterioration in total factor productivity, capital to worker ratio or per capita employment – due to COVID-19 lost vacations akin to haircuts as an extreme example”.

More generally, assuming tourist inflows return to pre-COVID trend only in 2023, the region will also be shortchanged by tourism ‘flow through’ benefits – the catalytical effect across the economy in terms of production and employment creation till then.

S&P economists added that countries in the region that are reliant on exports of metals and ore will reap the benefits of strong prices for their exports.

“Prices for hard commodities, such as iron ore and copper, have reached multiyear highs, and exports from key SSA metals producers, such as South Africa should continue to perform well thanks to China resilient demand”, the ratings said.

Meanwhile, the report stated that if the U.S. approves a new infrastructure plan, it could provide an additional boost to metals and hard commodity prices.

Oil prices have also staged an impressive comeback, with the price for Brent crude returning to pre-pandemic levels. We recently raised our oil price assumptions, and now expect Brent to average $60 per barrel (bbl) through the remainder of 2021, up from $50/bbl previously.

S&P global however noted that oil exporters such as the Republic of Congo (Brazzaville), Nigeria, and Angola will get some relief to their economies from higher crude prices.

It said however, economic growth will remain unimpressive for South Africa, Angola, Nigeria, and the Republic of Congo (Brazzaville) compared with their regional peers.

In the three years prior the global recession, S&P economists said these countries had experienced real GDP growth that was below their respective population growth rates.

“In the next three years, the shortfall will remain, albeit to a smaller degree, due to structural constraints on economic growth, some of which have been exacerbated by the pandemic. The dependence on exports of minerals and oil for the quad (and some others in the region) also make their macroeconomic performance more vulnerable to price swings.

“There will also be continuity in terms of growth outperformers. Countries with the strongest pre-pandemic growth rates (above 5% in 2017-2019) Benin, Burkina Faso, Ethiopia, Ghana, Rwanda, Senegal, and Uganda are likely to continue outperforming their regional peers by returning to growth rates of more than 5% by 2022 or 2023.

“Still, that wouldn’t exactly be something to write home about, because it wouldn’t be enough to bring back these economies to their pre-pandemic trend in the next three years”, S&P economists concluded.

Sub-Saharan Africa Likely World’s Slowest Region in 2021 – S&P