Africa: Country Roads

5 min
Stephane Colliac
Stephane Colliac Senior Economist for France and Africa

Growth is gradually recovering and should reach +3.5% in 2018. Yet growth divergence across regions will remain fairly strong

 

Growth: Meet me halfway

In 2018, African economies will continue to exhibit salient divergences. On average, growth is on a higher path, accelerating to +3.5% in 2018 (from +3.2% in 2017), but will stay well below pre-crisis levels (+5% in 2012). The continent will prove resilient on key positive long-term economic developments: investment in infrastructure and the industrial revolution will together continue to fuel economic growth.

These positive developments are particularly prominent in East African economies, bringing stability to their high growth rates (+6.6% in 2018). Other economies in Southern Africa (e.g. Zambia) or in West Africa (e.g. Côte d’Ivoire or Ghana) are also benefitting from this virtuous circle. Increases in the capital stock fuel agricultural productivity and the development of low value-added manufacturing sectors (textile) or consumer-related ones (car plants). As a result, despite low agricultural prices, output growth is protecting farmers’ incomes.

But not all African economies will grow this year. Financing issues (low levels of foreign reserves, high external deficits and debt levels) will continue to weigh on the outlook in Central Africa (+1.5%), in Angola (+1%) or in Tunisia (+2.5%). Moreover, these countries will still be exposed to exchange rate depreciation pressures.

The Fantastic Four in different shapes

Egypt should be among the best performers in 2018, growing by +5%. Key reforms implemented from November 2016 (flexible exchange rate, partial unwinding of capital controls and subsidies cuts) are delivering fast, with a positive impact on growth. In 2018, the rapid decrease of inflation to +12% from +29.5% in 2017 will help.

In 2017, Nigeria emerged from a long lasting recession and an exchange rate crisis. Better business environment and the recovery of oil prices should stimulate growth: we expect it to accelerate to +2.5% in 2018 from +0.8% in 2017. However, inflation persistence at +12.9% in 2018 may well trigger new depreciation pressures on the Naira.

In 2017, South Africa posted below 2% growth for a fourth consecutive year, putting public debt on a rising trend (53% of GDP in 2017, compared to 41% in 2012). 2018 should be about growth recovery (+1.4% up from +0.8% in 2017), as lower inflation (+5% in 2018) will help.

Morocco will probably grow slower in 2018 (+3%). Indeed, growth in 2017 (+3.8%) benefitted from one-off effects of an agricultural crops recovery. Overall, growth in the manufacturing sector will be quite stable. The country adopted a more flexible exchange rate regime in January, a welcome move in order to reach new export destinations.

Growth forecasts per region, in %

Sources: IMF, Euler Hermes, forecasts