THUR, DECEMBER 13 2018-theG&BJournal- Most African countries have a positive economic outlook, apart from those with upcoming elections, according to ICAEW’s (the Institute of Chartered Accountants in England and Wales) latest report. In Economic Insight: Africa Q4 2018, launched yesterday, the accountancy body provides GDP growth forecasts for various regions including East Africa which is set to grow by 6.3%, Western and Central Africa by 2.5%, Franc Zone at 4.6% and South Africa by 1.2%.
The report, commissioned by ICAEW and produced by partner and forecaster Oxford Economics, provides a snapshot of the region’s economic performance. The regions include; East Africa, Central and West Africa, Franc Zone, Northern Africa and Southern Africa.
According to the report; East Africa continues to report the highest GDP growth on the continent even though the region’s economic growth is expected to ease slightly, from 6.8% in 2017 to 6.3%. Ethiopia reported the highest forecast at 7.8%, while the lowest forecast for the region was at -3.8%, by war-torn South Sudan.
However, lower growth ranking for some countries in the region demonstrate how large an effect political instability can have on economic prospects. For example Kenya’s growth rebounded to 5.4% this year after it dropped to 4.9% in 2017. The drop was attributed to political uncertainty during last year’s elections.
Michael Armstrong, Regional Director, ICAEW Middle East, Africa and South Asia said: “Political instability tends to peak around election time for some African nations. This scenario tends to dampen the GDP growth of some countries, since economic growth shares a complex relationship with both elections and accompanying political instability.”
In West and Central Africa average growth is forecast at 2.5%. Ghana’s forecast is expected to expand by a decent 5.2%, highlighting a stable economy. However, this is not so for Africa’s largest economy, Nigeria whose growth is forecast at 1.8%. The weak performance can partly be attributed to the upcoming elections in February next year.
There is little uncertainty about who will win elections in the Democratic Republic of Congo (DRC) in December, but political tensions are set to rise nonetheless, and are the main obstacle to the GDP growth forecast of 4.1% this year.
The elections narrative is still replicated in Southern Africa, being the slowest region with GDP forecast set to expand only by 1.2%. Election rhetoric regarding land and property rights in South Africa ahead of polls in 2019 has frightened investors.
As a result, President Cyril Ramaphosa is finding it difficult to convince them otherwise. The country is expected to post GDP growth of just 0.7%.
Meanwhile, Zimbabwe’s government is suffering from post-election credibility difficulties, with international lenders and investors unconvinced that the scenario has improved in Harare – after violence and fraud allegations marred July’s election.
In North Africa, Libya and Algeria are set to hold polls in the near future, in December 2018 and April 2019, respectively. Nevertheless, Libya’s election will almost certainly not go ahead as the legal framework for it is not yet in place. Incidentally, the two countries are the region’s fastest and slowest growing economies this year, at 14.7% and 2.3% respectively.
Egypt which held elections in March to overwhelmingly return President Abdel Fattah Al-Sisi to power, is expected to grow by 5.3% this year. The certainty of Mr Sisi’s grip on power appears to be helping the country’s economic rebound.
The Franc Zone is expected to see GDP growth of around 4.6% this year. Cameroon is expected to post a GDP growth rate of 4.0% this year – up from 3.2% in 2017. This is despite the unpopular re-election of President Paul Biya and the violence that accompanied his re-election.
Elections and accompanying political instability evidently have a complex relationship with economic growth.
Focus: Nigeria
The economy disappointed over the first half of the year, with GDP expanding by only 1.7% y/y during H1. Contributing factors were weak private sector credit extension, fuel shortages and delays in passing the fiscal budget. However, we expect the performance during the second semester to be stronger. Oil production has rebounded slightly faster than anticipated in recent months – according to OPEC figures, oil output rose from 1.64 million b/d in July to 1.75 million b/d in September.
The non-oil economy still faces headwinds, evidenced by leading indicators declining slightly from recent highs. That said, a ramp-up in fiscal spending will provide a boost in H2. Demand-side activity should also gain traction thanks to lower inflation and a gradual increase in liquidity – the consumer confidence index also moved back into positive territory in Q3. We maintain our forecast for real GDP growth to reach 1.8% this year.
The manufacturing PMI declined to 56.2 in September. The non-manufacturing PMI also trended lower from 58.0 in August to 56.5, ascribed to weaker performances in the agriculture, healthcare and telecommunications sectors. That said, Nigeria’s PMI readings remain well within expansion territory. This supports our view of a recovery in non-oil activity, albeit at a more gradual pace than we had expected before.
Inflation edged higher for the second consecutive month in September, reaching 11.3% y/y, mainly ascribed to rising food costs due to flooding and security challenges. There is still limited evidence of a fiscally-induced liquidity injection placing upward pressure on prices, but this could become more of a risk as elections approach. Inflation is still forecast to average 12.2% this year.
Another variable likely to be affected by approaching elections is Nigeria’s foreign currency buffer. Foreign reserves rose sharply from US$30.3bn in June 2017 to US$47.2bn a year later, due to a surge in portfolio inflows following the liberalization of the exchange rate framework in addition to aggressive external debt accumulation.
However, in the next few months reserves declined to US$44.6bn (the figure at end August) and the central bank’s 30-day moving average estimate stood at US$42.4bn on October 24. The pressure on reserves most likely stems from portfolio reversals in light of rising returns in advanced economies, but uncertainty related to February’s election may also be weighing on the minds of investors. That said, reserves may well receive a boost from additional external debt accumulation. On October 17, the Nigerian Senate approved a request for Abuja to issue a further US$2.8bn in Euro-bonds. Oxford Economics forecasts reserves will end the year at US$42.2bn.
With regard to campaigning ahead of February’s elections, both main parties – the ruling All Progressives Congress (APC) and People’s Democratic Party (PDP) – held their primaries to select candidates in early October. The APC’s choice of President Muhammadu Buhari was a foregone conclusion, but a number of strong candidates were in the running for the PDP’s presidential ticket. In the end, the opposition party went for former Deputy President Atiku Abubakar.
Mr Abubakar was a solid choice for the PDP; if he had not been picked, he would most likely have broken away and split the opposition vote. Besides that, he is wealthy, has good name recognition and, perhaps most importantly, he is not Mr Buhari. We expect this final trait to be Mr Abubakar’s main campaign message after Mr Buhari’s first term was riddled with multiple crises (economic and security related).
Mr Abubukar has also managed to secure the backing of his former foe Olusegun Obasanjo (president when Mr Abubakar was deputy). That should help bring in some votes in the south-west where the PDP is weaker than the APC.
While the race will be more competitive than expected, Mr Buhari remains the favourite to win. This assessment is based mostly on his popularity in the north-west which accounted for 30% of all votes cast in 2015’s presidential election. He also has the backing of powerful politicians in the southwest which could be the swing region that decides the winner. As polling from September on Mr Buhari’s approval rating indicates, however, it is likely to be a very close contest.
The full Economic Insight: Africa report can be found here: https://www.icaew.com/technical/economy/economic-insight/economic-insight-africa-Distributed by African Media Agency.
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