Sub-Saharan Africa Can Ride Out Commodity Price Losses

With China continuing to slow, the oil price around US$60, and other key commodities down – including tea, gold and copper – some of Sub-Saharan Africa’s largest economies are facing strong headwinds this year.

Real GDP Growth in the 10 Largest Sub-Saharan Economies in 2015

Source:  Euromonitor International from national statistics/Eurostat/OECD/UN/IMF

Note: Data are forecast

• Nigeria, the region’s largest economy, postponed its presidential elections earlier this year due to security concerns. The low oil price is eating into its foreign reserves and putting a strain on government finances. The currency has been devalued and interest rates hiked. In turn this is putting upwards pressure on inflation as the prices of imported goods rises. Nevertheless real GDP growth is still expected to come in at 5.9% this year supported by growth in the non-oil sector, particularly services. Although it’s become clear that the economy is less oil-dependent than was previously thought, crucially oil revenues still account for a large proportion of government revenues because of weak taxation.

• South Africa’s economic woes have not dimmed in 2015 – the economy is beset by challenges. Real GDP growth was at its lowest last year since 2009, and 2015 has got off to a bad start with electricity outages which are affecting manufacturing and in turn dampening economic growth.  Labour market unrest has stifled growth in recent years. South Africa’s twin deficits – fiscal and current account – continue to be a cause for concern, leaving the country open to a reversal in investor sentiment.

Other major economies in the region have their own problems – for instance Ghana, which has negotiated a US$1 billion agreement with the IMF as its economy struggles with low gold and cocoa prices, a falling currency and high debt; and Kenya which is suffering from a downturn in tourist arrivals, twin deficits and the falling tea price.

Shaking off the gloom

Yet growth rates are for the main part expected to strengthen this year, with private final consumption forecast at 6.0% in 2015, up from 4.5% in 2014. This year, private final consumption in Sub-Saharan Africa is set to reach US$1,152 billion (in 2014 prices) and will account for 67.0% of the region’s GDP. And this is the key to Africa’s growth – its potential as a consumer market, its young, fast-urbanising population and its burgeoning middle class – this is 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.

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