Economic Pressure Fails to Dim Sub-Saharan Africa’s Long-term Promise

Earlier in the year I asked the question can Sub-Saharan Africa ride out commodity price losses? I argued that yes it can because the key to Africa’s growth lies outside commodities – its potential as a consumer market, its young, fast-urbanising population and its burgeoning middle class should be why Sub-Saharan Africa is still top of mind for many multinationals, and why falling commodity prices will not put an end to the “Africa Rising” narrative in the long-term.

Downwards pressure

There’s no doubt that commodity price falls and China slowdown are impacting the region, and several major economies have seen large downwards revisions to their GDP. Those reliant on commodities, such as Nigeria, Angola and Ghana, have seen the largest falls. As a whole we now expect Sub-Saharan Africa to grow at 4.2% in 2015, compared to our forecast of 5.3% in March of this year. But remaining the second-fastest growing region globally, behind Asia Pacific.

Revisions to Real GDP Forecasts in the 10 Largest Sub-Saharan African Economies: 2015 and 2016.

Source: Euromonitor International from national statistics/UN/IMF

Note: Data refer to the revision in real GDP growth since March 2015.

Conversely, the Democratic Republic of Congo, Tanzania and Ethiopia have all had their growth prospects revised upwards. In the Democratic Republic of Congo’s case this is despite its reliance on commodities. All three are experiencing strong growth in consumer expenditure.

The size of the domestic market plays a key role

The importance of commodity exports varies substantially across economies. Private consumption accounts for more than 80% of GDP in both the Central African Republic and Kenya; and in both economies exports account for less than 10% of GDP. This is partly why both will be amongst the region’s fastest-growing economies in 2015.

Importance of Exports and Private Consumption in Selected Sub-Saharan African Economies: 2014

Source: Euromonitor International from national statistics/UN/IMF

The strength of private consumption is driven by gains in household income. For example, in Cameroon and Kenya the number of households with a disposable income over US$10,000 in 2014 constant prices has increased by 48% since 2009. In Kenya this growth is set to accelerate sharply to 2019 – with growth of 65% over this period. The bottom of the pyramid should not be overlooked though as in both countries the majority of households earn less than US$5,000, and this will remain the case in 2019.

Growth in the Number of Households with a Disposable Income over US$10,000: 2014-2019

Source: Euromonitor International from national statistics

Dynamic consumer markets key for growth

The upshot is yes Sub-Saharan Africa is being affected by commodity prices and the China slowdown, but in the long term the region’s potential remains strong. Particularly for those economies with dynamic consumer markets. This is not to say that risks should be downplayed – political instability, poor business environments and inadequate infrastructure overshadow some countries in the region, but the future can be bright for those with a diversified economy and growing consumer base.