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African economies set for uneven post-coronavirus growth, says Fitch Solutions

African economies set for uneven post-coronavirus growth, says Fitch Solutions

Growth will be uneven across sub-Saharan Africa in 2021 as countries pursue a wide variety of Covid-19 mitigation strategies amid global economic disruption.

Some sub-Saharan African countries will also have to face up to domestic political unrest, said Fitch Solutions’ regional experts in a webinar on 5 October.

Emerging markets are set to rebound faster than developed economies, but Asia will outperform sub-Saharan Africa and Latin America. Global barriers to growth include November’s US election, market volatility and inflation, disruption to job markets and the ongoing effects of Covid-19.

Southern Africa’s GDP set to shrink

Southern Africa is expected to continue its trajectory as Africa’s regional underperformer due to recent droughts and downward pressure from the sluggish economies of South Africa and Angola.

Southern African GDP is set to shrink by 6.8% in 2020 before recovering to growth of 2.2% in 2021, said Jane Morley, head of sub-Saharan Africa risk at Fitch Solutions.

South Africa’s economy was hardest hit in the second quarter of this year as the country pursued one of the world’s strictest lockdowns. GDP is not expected to return to 2019 levels until 2025, while official unemployment languishes at 23.3%. 

East Africa will grow by 3.3% in 2021, driven primarily by growth in Kenya, Ethiopia and Tanzania. Fitch Solutions predicts that the Kenyan economy will rebound to 4.2% in 2021 driven by an uptick in household consumption, though net exports will begin to weigh on growth in the long term.

Ethiopian growth could recover to 4.1% in 2021, from just 1.7% in 2020, but could remain well below the previous five-year average of 8.7%.

Fitch Solutions also predicts a high risk of “substantial social unrest” relating to political tension between the federal government and its adversaries in the Tigray and Oromo regions.

West Africa predicted to perform best

West Africa is the region slated to perform best in 2021, growing by an average of 4.4% and driven by strong performances in Ghana, Senegal and Côte d’Ivoire.

Although growth dipped to a multi-year low because of weaker exports and softer domestic demand, Côte d’Ivoire’s rebound in 2021 will be led by stronger cocoa and oil exports and rising private consumption.

The heightened prospect of unrest in late October’s election – in which President Alassane Ouattara will seek a third term – has sparked fears of a return to greater instability.

“If we were to see much more significant unrest like in 2010 and 2011, then of course we would be looking to revise our forecast down,” said William Attwell, Fitch Solutions’ senior country risk analyst.

Given continuing low oil prices of less than $40 a barrel, Nigeria continues to drag on growth in the region. The economy is likely to contract by 6% in 2020, based on a sharp fall in net oil exports, private consumption and investment.

Elsewhere, Ghana could bounce back faster than most of its peers on the continent with growth of 4.8% predicted in 2021. The rebound is the result of one of Africa’s shortest lockdowns and growing demand for Ghana’s commodity exports.

Themes to watch across Africa in the medium term include several high stakes elections, incremental reform progress, persistent fiscal pressures and rising security threats, according to Fitch Solutions. 

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Written by Tom Collins

Tom Collins is a seasoned East Africa analyst reporting from Nairobi on everything from banking and finance right through to regional politics and trade. Stay up to date on regional developments by following @thomashcollins1

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