Sub Saharan Africa slowdown set to continue during 2016

Coface said: “For some countries, it is a twofold struggle. On top of the fall in commodity prices, there has been a slowdown in activity in China since 2010, with many countries exporting considerable quantities of commodities to China.” It predicted there are ten countries whose economies would slow down most between 2013 and 2016: the oil exporters – Angola, Nigeria, Equatorial Guinea, Democratic Republic of Congo (DRC), Chad and Gabon; and exporters of other commodities – South Africa, Liberia, Ghana and Zambia. Some countries like Angola and the DRC, whose growth declined by 4.8% and 3.5% respectively during the same period, were characterised by a strong dependence on China, according to Coface. Their share of exports to China exceeds 40% of total exports and commodities as the share of earnings generated by natural resources is between 30% and 40%.hideThe current account balances in Gabon, Angola and Liberia have fallen between 10% and 20% of GDP between 2013 and 2016. This phenomenon has been accompanied by strong downward pressure on their exchange rates against the dollar, which itself has caused a marked increase in inflationary pressures. Angola, Ghana, South Africa, Nigeria and Zambia have had to cope with a massive depreciation of their exchange rates against the dollar. This phenomenon is unlikely to be corrected this year. The depreciation is expected to reach between 30% and 52% between 2013 and 2016 according to BMI, and these countries’ consumer price levels are expected to post the largest increases (between 4% and 12% points according to BMI) and hit far higher levels than the targets set by the central bank. However, currencies and commodity prices have generally stabilised since the start of 2016. Furthermore, Sub Saharan Africa has traditionally been the zone where oil price fluctuations in the international markets have barely been transmitted to domestic prices. More than half of the Sub Saharan African countries adjust their fuel prices in a discretionary manner, while 40% make these adjustments by using automatic formulae. As they face a depreciation of their exchange rates, a number of Sub Saharan African countries have tried to maintain a certain exchange rate but this strategy has sometimes proven to be pointless, said Coface. For example, the National Bank of Angola has taken restrictive measures on the allocation of foreign currencies, leading to a lengthening of payment periods for many companies, and has also on two occasions decided to devalue the kwanza. Nigeria decided in mid-2015 to adopt restrictions on about 40 products to stabilise the exchange rate and made its exchange rate regime flexible on 20 June 2016. Maintaining the exchange rate was clearly unsustainable, particularly in view of the level prevailing in the parallel market (around 350 naira per dollar in early June 2016, versus 199 naira for the official rate). After a 30% depreciation on 20 June, the new exchange rate was 260 naira per dollar. In the wake of the government move, Fitch Ratings downgraded Nigeria’s long-term foreign currency Issuer Default Rating (IDR) to B+ from BB- and long-term local currency IDR to BB- from BB. The outlooks are stable. The issue ratings on Nigeria’s senior unsecured foreign currency bonds have also been downgraded to B+ from BB-. The country ceiling has been revised down to B+ from BB- and the short-term foreign currency IDR affirmed at B. Fitch said the move reflected Nigeria’s fiscal and external vulnerability. It also pointed to renewed insurgency in the Niger Delta in H1 2016 that has lowered oil production, magnifying pressures on export revenues and limiting the inflow of hard currency. Meanwhile, Martin Roberts, senior analyst, IHS Country Risk, said two belated but critical policy reversals by the government – the devaluation of the naira and removal of the fuel subsidy – have allowed some optimism that the expansionist 2016 budget could achieve its goal of reinvigorating an ailing economy. He said: “To help prevent Nigeria heading into recession, the move towards exchange rate flexibility is likely to attract a wave of new capital, both portfolio and longer-term investment.” However, he added: “The scale and effectiveness of this will be largely dictated by the government’s ability to prevent further devastating attacks on oil and gas infrastructure by Niger Delta militants, as these badly affect both government revenue and the image of Nigeria as a sound investment destination, and threaten further potential fuel and power shortages.”

Sub Saharan Africa slowdown set to continue during 2016

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