Sub-Saharan Africa Growth ‘Resilient to Lower Oil Prices’

Sub-Saharan Africa (SSA) is set for average gross domestic product (GDP) growth of 5% in 2015, up from 4.5% in 2014, predicts Fitch Ratings in its latest credit overview of the 18 countries rated by the agency.

Fitch adds that growth will not be evenly spread across the region but should be resilient to lower oil prices. Countries’ ability to grow will be impacted by their degree of commodity dependence, exposure to China, domestic challenges and capacity to invest.

Growth in Nigeria, SSA’s largest economy, has been revised down from 6.4% to 5.2% for 2015, as a result of lower oil prices and tighter policy. This will be offset by an uptick in South Africa’s growth, although challenges in the electricity sector may see growth underperform. Oil importers and countries with the fiscal space to invest will continue to grow robustly.

Inflation is expected to moderate across the region due to lower oil and agricultural prices, says Fitch. Public finances will remain expansionary, with the average budget deficit rising to 4.9% of GDP in 2015, from 3.9% in 2014 and 0.8% in 2011. Over the same period, the average current account will swing from surplus into deficit.

Lower oil prices will dampen growth in Angola, Nigeria and Gabon, which will also see external and fiscal balances worsen. However, most SSA countries are significant oil importers – oil makes up around 20% of the import bill in Kenya, Cote d’ Ivoire, Seychelles and Ethiopia – and will therefore be beneficiaries of lower prices. Foreign investment and export performance could be undermined in Zambia and Mozambique, due to lower commodity prices and close trade ties with China.

Home-grown challenges will hamper growth and could weigh on ratings over the coming year in Ghana and South Africa. Growth in South Africa will be held back by challenging labour relations, electricity shortages and weak private sector investment.

Fiscal consolidation – a rating sensitivity – will be dependent on keeping public sector wage growth broadly in line with inflation. In Ghana, deteriorating confidence, a shortage of electricity and lower commodity prices will dent growth and the country’s ability to raise revenue in the year ahead, undermining the credibility of the government’s deficit reduction strategy.

Countries benefiting from ambitious infrastructure spending programmes (Kenya, Uganda, Mozambique, Cote d’Ivoire and Ethiopia) will continue to grow robustly. However, balancing the need for increased infrastructure investment against the need to maintain debt sustainability highlights the increasing challenge that countries like Kenya, Lesotho and Mozambique may face with government debt levels already above 43% of GDP.

SSA ratings will be driven more by success or failure in promoting macro stability and structural reform than commodity price changes, Fitch concludes. The Seychelles and Rwanda are good examples of sovereigns that have improved their policy frameworks and governance, leading each to be upgraded two notches since their ratings were assigned. The agency placed Zambia and Cote d’Ivoire on positive outlook in 2014 and if the policy environment continues improving both could eventually be upgraded.

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