Hold on to your hats – next year will be a rocky ride for Africa

Dianna Games

Dianna Games

CHINA’S promise last week to deepen partnerships with African countries and provide $60bn over three years to address constraints to development, was good news for a continent facing many headwinds as it rushes headlong into 2016.

Ironically, China’s slowdown is one of those headwinds. But there are many other issues that will make next year a difficult one for sub-Saharan Africa.

The continent’s petro-states have slashed budgets and put infrastructure projects on hold as budgets dry up, but they continue to reel from the effect of low oil prices.

Any hopes that this was just a brief cyclical blip have been dashed by the fact that 18 months since the oil price plunged, there is no sign of an upturn.

Oil industry executives speaking at the Africa Oil Week conference earlier this year confirmed the view that the “world of $50 oil” isn’t going to change anytime soon.

At the same event last year, oil majors flagged ambitious exploration projects and mentioned the billions of dollars lined up for Africa’s oil and gas assets. This year, the broad narrative focused on project pullbacks and how to negotiate this long, rocky road.

Oil is just part of the problem. Lower commodity prices in general signal that next year is going to be difficult for Africa.

Buffeted by global developments and internal weakness, currencies in Africa have lost significant value. Angola’s kwanza, Zambia’s kwacha and Nigeria’s naira are among the main casualties. SA has not fared well either. Fitch Ratings has predicted that emerging markets will face another wave of ratings downgrades next year.

The benefits of lower oil prices for non-oil producers have not been realised in many cases.

SA, for example, is looking at growth rates of about 1.5% and a widening trade deficit. Despite this, there is little political leadership in addressing the looming macroeconomic and social crises.

SA, like many other African states, is facing the challenge of rising debt. The resort by a number of African economies to issue Eurobonds to fill fiscal voids is coming back to bite them.

Ghana and Zambia have already turned to the International Monetary Fund (IMF) for help with growing fiscal crises caused in part by unsustainable debt levels. Angola recently raised $1.5bn in international markets and analysts predict that debt will make up nearly 40% of gross domestic product by the end of next year.

Sovereign bond sales in Africa doubled between 2012 and last year to a record $11bn. Fitch says that by the end of next year, sub-Saharan Africa’s sovereign external debt burden is likely to have increased 38% from 2013.

Continental growth rates are also falling from highs of more than 5% for a decade to below 4% this year. The IMF predicts that this may inch above 4% next year, but will remain off previous highs for some time.

This is a testing time for Africa.

With the tide going out, long-term structural problems and embedded dysfunction that exist in almost every African economy are being exposed.

Security issues in some countries present specific challenges, and third-term bids by presidents presage possible political destabilisation next year and in 2017.

In the patchwork of countries that make up Africa, there are also positive stories.

Growth rates remain strong in Kenya, Ethiopia and Mozambique, for example. Nigeria is decisively tackling some of its deep-seated challenges, such as corruption, while Tanzania’s new leadership is cutting back wasteful state expenditure.

This challenging environment is an opportunity for real structural change. However, this requires strong leadership — not heads of state driven by self-interest and political expedience.

It is not up to China to rescue Africa; it is the job of Africans themselves. But it is going to be a rocky ride. Time to hold on to your hats.

By Dianna Games

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