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Sub-Saharan Africa offers a mixed image of QNB


DOHA: Sub-Saharan African (SSA) activity has boosted and GDP growth of 3.1 percent is expected in 2018 from 2.7 percent in 2017, QNB said yesterday in its weekly economic commentary.

Given the large number of SSA countries, QNB said, it has focused its analysis on economies that exceed or exceed performance in terms of the regional macroeconomic context.

The research note draws on the two major economies of the SSA, Nigeria and South Africa, which have seen a slow rise in spite of a return of commodity prices, as well as Ethopia and Ghana, which QNB regards as regional growth champions.

QNB analysts noted that Nigeria and South Africa account for nearly 50% of the continent's GDP. Both countries are resource-intensive economies and have struggled to achieve stronger growth since the commodity price shock at the end of 2014.

At that time, net oil exports to Nigeria collapsed, and South Africa's external revenues from platinum, iron ore and coal fell.

After the first contraction of production in more than two decades in 2016 and a very slow 0.8 percent growth in 2017, Nigeria is set to 1.9 percent economic growth in 2018. The main factors behind the recovery were the growth oil prices, more stable hydrocarbon production and the agricultural sector.

High oil prices supported both current account surpluses and a reduction in the fiscal deficit. Together with bond issues and other portfolios, this has helped to increase external reserves and support the new currency regime.

The outlook shows better performance in 2019, but it is expected to increase the growth rate of 2.3%. Risks are tilted to the disadvantage as oil prices are expected to decline, and disruptions to oil production pose a potential threat to business.

Despite the rise in commodity prices and a new leadership that boosted reform optimism and a more business-friendly agenda, South African expansion weakened in 2018. GDP growth is expected to fall to 0.8% this year from 1.3% in 2017.

Weakness is driven by the agricultural, transport and retail sectors, and recent quarterly contractions have brought the country into the first technical recession since the fall of a major financial crisis in 2009.

In the context of the structural current account deficit, South Africa is vulnerable to the sentiment of foreign investors and has been affected by the tightening of global financial conditions and FX turmoil in other emerging markets (EM). Large outflows from the portfolio were outpaced, and the South African row dropped 16.7% against the USD so far this year.

The scenario is more positive for 2019. A recovery in the agricultural sector and a more loyal fiscal policy should increase to 1.4%. However, risks are also leaning towards the disadvantage as commodity prices are particularly sensitive to weaker global growth, and monetary policy normalization in key advanced economies can generate additional pressures in EMMs, forcing the central bank to tighten monetary policy.

Ethiopia and Ghana are the most significant economic performance of the continent. Ethiopia is often called "China of Africa" ​​and has consistently been one of the fastest growing economies in the world since the early 2000s.

With deep political stability and a diverse and rich base of natural resources, including crude oil and gold, Ghana also showed long-term growth rates well above the SSA average.

Ethiopia is set to show another year of strong growth, with an activity expected to increase by 7,5% in 2018. Foreign direct investment (FDI) in infrastructure and production continues to lead to rapid industrial expansion.

Robust domestic activity, driven by large infrastructure and investment spending, contributes to internal and external imbalances. Export-oriented projects need more time to flow while imports grow and the budget balance worsens.

Ethiopia is experiencing trade and current account deficits. But the government has managed to finance some of the foreign capital deficits, especially FDI associated to new industrial parks and privatization programs.

The outlook for 2019 shows a real increase of 8.5%. With lower labor costs than most of its fellow Americans, Ethiopia expects to continue to attract foreign investment in key sectors that generate jobs, such as textiles and footwear, which should support a gradual shift towards a more export-oriented economy.

The Ghanese economy returned, and growth is expected to moderate in 2018 to 6.35%, from an increase of 8.4% in 2017. Major growth reasons include oil production and price support for larger commodities especially crude oil and cocoa.

Fiscal deficits have increased, but the current account deficit has narrowed against the background of rising external incomes. Economic growth is expected to accelerate to 7.6% in 2019. Risks are downward, as commodity prices should mitigate the impact next year.

In spite of the global recovery of economic growth, a major common concern for most of the SSA countries is the increase in foreign currency debt driven by investors' higher returns and huge investment needs for infrastructure and social development. The tightening of the US monetary policy will increase the risks of refinancing and overthrowing the SSA border markets.

Portfolio entries were strong in the first half of 2018, with the issuance of Eurobonds. This adds to the boom in the last year of the sovereign broadcast in Africa. In the medium and long term, SSA sovereigns should rely more heavily on domestic and tax revenues to address sustainable eco-nomic development at risk-adjusted levels.

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