South Africa has joined Nigeria in the recession club. This means Africa’s two largest economies are now in a recession, a situation that will slow down the growth of the rest of the continent and could translate to increased investor appetite for faster growing but economically smaller Kenya, Ethiopia and Ivory Coast.
South Africa’s economy fell into a recession for the first time since 2009 after contracting for a second consecutive quarter in the first three months of 2017, Statistics South Africa said Tuesday June 6.
Africa’s most industrialised economy saw Gross Domestic Product (GDP) recede an annualized 0.7 percent in the first quarter from a contraction of 0.3 percent in the previous three months, with every industry except agriculture and mining contracting.
Nigeria on the other hand contracted 0.5 percent in the first quarter of 2017, the fifth consecutive quarter of contraction, after oil prices and production slumped- stirring an acute scarcity of dollars- and power shortages crimped output.
“The underdogs are in pole position to take the shine off Nigeria and South-Africa,” said Johnson Chukwu, CEO of Lagos-based asset management firm, Cowry Assets. “Interestingly, that is already happening.”
“Smaller economies like Kenya, Ethiopia and Ivory Coast are already attracting interest from investors with an Africa horizon and if the heavyweights slack for too long it may prove costly,” Chukwu said.
Sub-Saharan Africa will probably expand 2.6 percent this year from 1.4 percent in 2016, according to the International Monetary Fund (IMF) bogged down by the declining fortunes of its largest economies.
The Washington lender forecasts Nigeria and South Africa to expand 0.8 percent.
Ivory Coast, Senegal, Ghana, Rwanda and Ethiopia are tipped to grow at more than double the sub-Saharan region’s average forecast rate of 2.6 percent this year. These countries grew at an average of 5 percent last year.
South Africa’s growth slowed to 0.3 percent last year, the lowest rate since 2009, after low commodity prices, the effects of the prior year’s drought and weak demand for locally made goods weighed on output. Unemployment rose to a 14-year high in the first quarter. The business confidence index remains near the lowest level in more than two decades.
In Nigeria, GDP contracted 1.5 percent, while the cost of goods and services accelerated to an 11-year high, exacerbating the pain of households and businesses.
Unemployment rose to a six-year high of 14.2 percent in the last three months of 2016, the National Bureau of Statistics said Monday.
There is however some optimism that both economies are on the path to recovery, as they put the worst of commodity price declines behind them.
Nigeria is expected to rebound as oil prices stabilise around $50 a barrel and production surges to almost 2 million barrels daily, following the lifting of force majeure on Shell’s Forcados terminal, which could restore around 300,000 barrels daily to a current output of 1.5 million bpd.
The government targets 2.5 percent growth this year, as stipulated in its economic blueprint- the Economic Recovery and Growth Plan (ERGP).
With a population growth rate of close to 3 percent and given its economic potential, the Nigerian economy in particular is need for growth in the region of 7 percent, otherwise an economic rebound would elude the citizens, according to Andrew Nevin, chief economist at PriceWaterhouseCoopers (PWC).
“Nigeria’s economy needs to grow at least 5 percent for us to make progress,” Nevin said by email.
“This is only possible with an investment led recovery. We estimate that Nigeria requires at least N25 trillion- N30 trillion of annual investment to reach a GDP growth rate of 5-7%.”
Africa attracted $94.1 billion of foreign direct investment last year, up from $71.3 billion the year before, accounting firm EY said in its 2017 Africa Attractiveness report, released on Wednesday. South Africa, Egypt, Morocco, Kenya and Nigeria accounted for 58 percent of the foreign direct investment projects.
Nigeria attracted $5.1 billion in foreign investment in the period, the lowest in nine years after capital controls forced investors to flee.
In Q1, foreign inflows totalled $908 million, though a 24 percent improvement year-on-year given helped by a low base from last year, but still low compared to early 2014 levels.
LOLADE AKINMURELE
