Having weathered a torrid 2015, sub-Saharan Africa faces another trying year financially. Analyst Andrew Manners considers who will be the main winners and losers in Africa in 2016.
PLUNGING commodity prices and sustained economic headwinds made 2015 a painful year for most in sub-Saharan Africa. In fact, a number of factors, including record-low oil prices, a worrying slowdown in China, and an emerging markets crisis, conspired to ensure that the pace of growth remained lower.
Moreover, despite an improved third quarter, the IMF was forced to revise its earlier predictions, with the region now forecast to post growth of around 3.75 percent for the year – barely 1 percent cent higher than the global rate. Such a sober picture is a far cry from the giddy predictions of a ‘Rise of Africa’, which were previously in vogue.
Unfortunately for the continent, many of these factors will linger throughout 2016, heaping further misery on the likes of South Africa, Angola, and Nigeria, all of which struggled with currency and market turbulence. But while these countries will continue to struggle, there will be some bright spots. Starting from a smaller base, countries such as Cote d’Ivoire and the Democratic Republic of Congo (DRC) look set for impressive years, while Kenya, Africa’s fastest-growing economy in recent years, should be sound once again. This means that Africa will weather another tumultuous year and continue to post better-than-average growth, at least overall.
No African country had a worse fiscal year than South Africa. The continent’s second-largest economy was battered as protests, a mining sector collapse, sluggish economic growth, and political upheaval culminated in Fitch, a credit-rating agency, downgrading the country’s debt to a notch about junk status in December. Moody’s, another ratings service, changed its outlook to ‘negative’.
It is hard to disagree, too. After growth of barely 1 percent in 2015, South Africa is set for another tough year. Analysts are warning that another ratings downgrade in 2016 is likely. That would prove disastrous: many funds that hold South African debt are barred from owning junk, meaning investors would dump these bonds, with the country’s interest bill soaring – a prospect that will make policymakers especially uneasy considering the already-ballooning public debt.
In addition, constraints on electricity and water supplies will interrupt production and discourage foreign investment, while low commodity prices will continue to weigh on growth.
There was some respite recently; however, when controversial President Jacob Zuma put Pravin Gordhan back into the role of finance minister after a shambolic series of events that resembled a game of political musical chairs; Godhan was the third finance minister in less than a week.
Still, the signs for 2016 are ominous. Zuma’s economic prowess is questionable at best, while the country still has 35 percent unemployment. At the same time corruption, much of which is tacitly accepted by Zuma himself, remains endemic, and the country will continue to face strong global headwinds. The rainbow nation has been running towards a precipice; unless drastic changes are implemented, 2016 could well be the year it falls off it.
Nigeria was hit hard in 2015 as the free-falling price of oil took few prisoners. Thousands of oil firms across the globe went bust, with Saudi Arabia pursuing an aggressive policy of oversupplying the market in a bid to shore up market share: since Opec decided to continue record production levels 18 months ago – despite declining demand – oil has depreciated almost 70 percent.
That has been terrible for oil producers such as Nigeria, especially given oil and gas accounts for some 35 percent of its GDP and over 90 percent of its total exports revenue. The bad news for Abuja is that a drop in global oil production – and a subsequent rise in prices – appears remote, at least until the next Opec meeting in June (there are, however, rumblings of an emergency meeting being scheduled early next year). Oil may not reach the $20 low Goldman Sachs recently predicted, but it may not hit the $38 barrel average next year the Nigerian government is expecting as part of its ambitious 2016 budget either.
Yet despite low oil prices and internal security threats, a more stable political environment – after the appointment of a new cabinet in November – and increased spending on infrastructure, should support a positive year. GDP growth is expected to hit 4 percent, a 2 percent slowdown from 2015. That will still be slightly better than Angola, Africa’s largest oil producer, and roughly the same as Gabon. And with oil prices staying low, there is at least one silver lining: the country’s costly fuel subsidies, which amount to roughly 1.5 percent of GDP in 2014, will be far less burdensome.
Two countries set for notable years in 2016 are Cote d’Ivoire and the Democratic Republic of Congo (DRC), with Cote d’Ivoire set for a good year in particular.
After the re-election of Alassane Outtara in the presidential election earlier in October, welcome political stability, improved investment, and stronger agricultural production – as the world’s largest cocoa producer – will set a promising platform for a bright 2016; experts are expecting growth of around 7.7 percent, after a strong 7.9 percent posted in 2015, according to Focus Economics. That will make Cote d’Ivoire one of Africa’s best performers in 2016.
Meanwhile, the DRC should have another okay year. After recovering from a civil war that ended in 2003, the DRC has been one of Sub-Saharan Africa’s strongest performers over the past five years, where the extraction of minerals such as copper, cobalt, coltan, tin and zinc saw GDP growth often exceed 8 percent.
Unfortunately for the DRC, commodity prices have plummeted – especially for copper – while foreign investors will be deterred by the contested election, scheduled for 2016. The exact details of the election remain uncertain; President Joseph Kabila recently tried to postpone the election, claiming the country is not yet ready to head to the polls. That uncertainty, however, is likely to spook investors.
Consequently, ‘an orderly outcome in the 2016 elections could unlock further investment, but until then foreign investment flows will probably remain limited,’ says Bloomberg. Alternatively, any election postponement will increase the likelihood of unrest and riots, further deterring investors in the medium term. Either way, the DRC will achieve weaker short to medium term growth in 2016 and 2017, and the 8.7 percent growth the World Bank attributed to the DRC in 2015 is unlikely to be achieved in the near future.