Commodity prices have improved and the global economy is in good shape, but Nigeria and South Africa, the two economies that normally push the continent into faster growth, are struggling to reclaim their potential.
In a poll taken this week, median forecasts from economists and analysts showed Nigeria – Africa’s biggest economy – will grow 2.7 percent next year, 0.3 percentage points slower than forecast in July.
The west African economy recovered from its worst downturn in a quarter of a century last year but growth is still fragile. It dipped to 1.50 percent year on year between April and June.
Kenya, east Africa’s largest economy, is expected to grow 5.8 percent this year and next, though analysts said official reluctance to repeal a cap on commercial bank interest rates is hurting private-sector lending.
A separate survey two days ago showed South Africa – the continent’s second-biggest economy, which together with Nigeria makes up over half of sub-Saharan growth – is forecast to grow just 1.4 percent.
“We think that growth in both countries will remain disappointing next year,” said John Ashbourne, senior emerging markets economist at Capital Economics.
South Africa has not been able to extend its easing cycle during the emerging-market currency mayhem this year. Its Reserve Bank is expected to raise interest rates early next year.
While Nigerian rates have remained elevated at 14 percent for the past two years, its central bank has managed to squeeze the gap between its multiple currency exchange rates.
“The external environment will be tougher next year. We expect that commodity prices, which rose this year, will stabilise or – in some cases fall – in 2019,” said Ashbourne.
Nigeria derives about 80 percent of its revenues from oil while South Africa, a net importer, is still recovering from a recession in the first half of this year.
A Reuters survey of 50 analysts forecast Brent crude would average $73.48 a barrel in 2018. Brent currently trades around $80.00 a barrel.
The Nigerian government is trying to diversify its revenue away from global oil prices to greater tax collection
South Africa’s president has put in place reform plans, including re-prioritising 50 billion rand ($3.5 billion) of public spending to boost economic growth and create jobs.
But earlier this month, the Atlanta Fed President said the U.S. Federal Reserve should continue to raise rates until it gets to a neutral policy stance, a prospect that hurts emerging markets.
The economic research head at Ecobank, Gaimin Nonyane, said tightening in financial conditions will weigh on countries’ external debt servicing and will therefore create debt distress in emerging markets.
Several countries in the continent, like Zambia, which is expected to grow 3.8 percent this year and 3.9 percent next, are already in debt distress.
Still, the International Monetary Fund expects growth for sub-Saharan Africa to increase to 3.8 percent next year from 3.1 percent this year. The IMF’s estimates have averaged 5.1 percent between 2010 and 2015 for the region.
($1 = 14.2178 rand)
Editing by Larry King