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Sub-Saharan Africa offers a mixed picture of growth: QNB



DOHA: Activity in sub-Saharan Africa (SSA) has strengthened and is expected to grow by 3.1% in 2018. From 2.7% in 2017, as QNB noted in the weekly "economic commentary".

Considering the large number of countries in the SSA, QNB said it focuses its analysis on economies that are either better or weaker with regard to the regional macroeconomic environment.

The research note discusses two major economies, SSA, Nigeria and South Africa, which have seen a slow rise despite the recovery in commodity prices, and Etopia and Ghana, which QNB considers to be regional growth leaders.

QNB analysts have noted that Nigeria and South Africa account for almost 50 percent of the continent's GDP. Both countries are resource-intensive economies and since the end of 2014 they have been fighting to ensure stronger growth since the shock of commodity prices.

At that time, nominal nominal net exports of Nigeria oil collapsed, and African external revenues from platinum, iron ore and coal decreased.

After the first decline in production in more than two decades in 2016 and a very slow increase of 0.8% in 2017, Nigeria is expected to achieve a 1.9% economic expansion in 2018. The main factors driving revival were rising oil prices, more stable hydrocarbon production and the agricultural sector.

Higher oil prices support both surpluses on the current account and narrowing the fiscal deficit. Together with bond issues and other portfolio inflows, this contributed to the increase in external reserves and the maintenance of the new exchange rate regime.

The outlook indicates better results in 2019. But growth is expected to remain limited to 2.3 percent. The risk is going to the other side, as oil prices are set to fall and disruptions in oil production pose a potential threat to the business.

Despite higher commodity prices and new leadership, which stimulates reform optimism and more business-friendly, South Africa's expansion weakened in 2018. GDP growth is expected to slow down this year to 0.8% from 1.3% in 2017.

Weakness is the main driver of the agriculture, transport and retail sectors, and the recent quarterly contractions have further absorbed the country after the first technical recession since the great financial crisis in 2009.

By running structural deficits on the current account, South Africa is vulnerable to the sentiment of foreign investors and has been hit by tightening global financial conditions and turmoil in other emerging markets (EMs). Large outflows of the portfolio fell, while South African rand fell 16.7 percent. In relation to USD this year.

The scenario is more positive in 2019. The recovery in the agricultural sector and looser fiscal policy should increase growth to 1.4%. However, the risk is also downgraded, as commodity prices are particularly sensitive to declining global growth, and the normalization of monetary policy in key developed economies may generate additional pressure on EM currencies, forcing the central bank to tighten its monetary policy.

Ethiopia and Ghana are the most important economic results on the continent. Ethiopia is often referred to as "China in Africa" ​​and since the beginning of the 21st century has consistently been one of the fastest growing economies in the world.

Thanks to well-established political stability and a diversified and rich base of natural resources, including oil and gold, Ghana also presented long-term growth rates well above average SSA.

Ethiopia intends to present another year of strong growth, whose activity should increase by 7.5 percent in 2018. Foreign direct investment (FDI) in infrastructure and manufacturing industry continues to lead to rapid industrial expansion.

Strong activity on the domestic market, stimulated by large infrastructure and investment expenditures, contributes to further internal and external imbalance. Export-oriented projects are increasingly available, with increased imports and deterioration of budget balance.

The trade and current account deficits of Ethiopia are increasing. However, the government managed to finance some of the deficits with foreign capital, in particular FDI related to new industrial parks and privatization programs.

Outlook for 2019. They show a very high growth of 8.5%. With lower labor costs than most of its African peers, it is expected that Ethiopia will continue to attract foreign investment in key sectors generating jobs, such as textiles and footwear, which should support the gradual transition to a more export-oriented economy.

The economy of Ghana has rebounded and is expected to grow moderately in 2018. To 6.35 percent from a rapid 8.4 percent in 2017. The main growth factors are hydrocarbon production and support of higher commodity prices, especially of oil and cocoa.

The budget deficit has increased, but the current account deficit has decreased as a result of stronger external revenues. Growth is expected to increase to 7.6 percent in 2019. The risk is tilted to falls, because commodity prices should ease the touch next year.

Despite the general recovery in growth, the main concern of most countries in SSA is the increase in foreign currency debt, caused by investors' demand for higher yields and huge investment needs related to infrastructure and social development. The tightening of the monetary policy in the US will increase the refinancing risk and the risk of tipping over in the SSA frontier markets.

The portfolio inflow was strong in the first half of 2018, with record-breaking Eurobond issues. This contributes to the bull market last year in Africa in Africa. In the medium and long term, sovereign SSA states would have to rely more on domestic and tax revenues to address the sustainable development of the eco-nomic phenomenon at a risk-adjusted level.

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