In its end-year outlook report, Fitch Ratings says that Sub-Saharan Africa will remain a bright spot in an otherwise gloomy world economy in 2013. The credit ratings agency (CRA) expects regional growth to remain above 5%, retaining its place as the second-fastest growing emerging market region after Asia.
This is even more remarkable given that the regional figures are weighed down by continuing relative sluggishness in the region’s largest economy, South Africa, which may struggle to achieve 3% growth in 2013.
In the rest of the continent, growth will remain supported by infrastructure spending, the development of mineral resources and growing consumer spending. Strengthened policy regimes, efforts to improve the business environment, and rapid credit growth in some countries as financial markets continue deepening will support the development of the private sector.
Rising food prices and investors growing interest in Africa will be two themes to watch in 2013, says Fitch.
Watch Out for Rising FDI and Food Prices in 2013
Persistently high and rising food prices pose a concern for many low-income sub-Saharan African countries, where expenditure on food takes up the bulk of household expenditure. Net importers of staple foods are most vulnerable, particularly those running large current account deficits.
In 2013, Africa is expected to continue benefiting from an influx of foreign direct investment (FDI), while domestic capital markets will provide selective opportunities for international investors. Low global yields and a growing appetite for African exposure may prompt more countries to issue debut Eurobonds, following Zambia’s recent success.
The prospects for sovereign ratings in the year ahead will remain divergent. For the region as a whole the outlook is stable, with three positive, three negative and nine stable outlooks among the 15 rated sovereigns. Angola and Mozambique, which both have a positive outlook, will continue to benefit from growth approaching 8%, due to improved economic policy and natural resource and infrastructure development. However, Fitch says that to consider upgrades each country will need to maintain strong macroeconomic performance while balancing the need for fiscal prudence and to improve social and physical infrastructure.
Kenya and Nigeria are identified as having upward rating potential if current positive trends continue. Kenya’s upcoming elections could be an important inflection point. Smooth elections that brought continued stability and a favourable impact on the investment climate would bolster creditworthiness while a repeat of the violence seen in early 2008 would be a major setback. In Nigeria, positive rating action would depend on further progress on key reforms, particularly in the electricity and hydrocarbon sectors, and signs that the reinvigoration of structural reforms was boosting growth above its recent 6.5% to 7% range.
In Ghana by contrast, fiscal laxity in election years has become the norm and a credible fiscal consolidation plan after this month’s elections will be needed to avoid downward pressure on the rating. The stable outlook on Uganda’s rating will depend on the authorities’ ability to revitalise their commitment to reforms and infrastructure development, while successfully managing oil sector development, which has been delayed.
South Africa Still Struggling and China Slowdown Could Stall Growth
South Africa is something of an exception in the region and Fitch says that the events of 2012 have underlined its decision last January to revise South Africa’s outlook to negative. Deteriorating potential growth, aggravated by policy uncertainty and indecision in key areas, together with reduced fiscal space have combined to weaken the credit profile. Failure to address immense social challenges – particularly regarding education and unemployment – will inexorably weigh the rating down.
The report also gives more details of the impact on the region of a China ‘hard landing’, a scenario explored in Fitch’s recent ‘Global Economic Outlook’. Of the five countries studied, South Africa and Kenya would be most affected, due to their high global trade exposure as much as to their direct trade with China. By contrast, countries such as Angola would be more impacted by the fall in direct commodity exports to China and the impact of a China slowdown on commodity prices.
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