When a Greek man is at the tipping point, the usual slogan is
“Quo Vadis”. In the Chinese parlance, it is “Ni Qu NaLi”, which means “where do we go from here”. The past three quarters of the year have been challenging for African countries and the near term prospect looks very
bleak. Whilst noting the domestic challenges of insecurity, energy crisis, weak
fiscal position and high public debt overhang in the African economies; the
contagious impact of global “economic stagnation” is taking notable tolls on
African economies. Even as increased integration of the African economies into
the global market has a positive impact on growth, the overwhelming dependence
of African countries on China and a few developed countries increasingly
exposes Africa to external shocks, particularly in the form of lower commodity
prices, weak financial flows and moderated grants/aids.
“Quo Vadis”. In the Chinese parlance, it is “Ni Qu NaLi”, which means “where do we go from here”. The past three quarters of the year have been challenging for African countries and the near term prospect looks very
bleak. Whilst noting the domestic challenges of insecurity, energy crisis, weak
fiscal position and high public debt overhang in the African economies; the
contagious impact of global “economic stagnation” is taking notable tolls on
African economies. Even as increased integration of the African economies into
the global market has a positive impact on growth, the overwhelming dependence
of African countries on China and a few developed countries increasingly
exposes Africa to external shocks, particularly in the form of lower commodity
prices, weak financial flows and moderated grants/aids.
After an impressive feat in the last two decades, the Chinese
economy is slowing down, with the GDP growth taking a breather to sub-7.5%, the
lowest level in almost 20 years. Further reinforcing the slow growth number and
suggesting weaker demand for raw materials (i.e basic commodities, which are
the major exports of African countries) is the weak PMI, which settled at a
six-year low in September. The slowdown in China may further dent the prospect
of output growth in a number of African countries, especially for countries
like Angola and Zambia which rely on China for some 50% and 30% of their
exports respectively. More concerning is the decision of the policy authority
in China to devalue the Yuan by 2%, with signals of further devaluation if need
be, as the policy makers hope to strengthen the Chinese export market and
weaken capital outflows; a decision which may put more pressure on African
countries.
economy is slowing down, with the GDP growth taking a breather to sub-7.5%, the
lowest level in almost 20 years. Further reinforcing the slow growth number and
suggesting weaker demand for raw materials (i.e basic commodities, which are
the major exports of African countries) is the weak PMI, which settled at a
six-year low in September. The slowdown in China may further dent the prospect
of output growth in a number of African countries, especially for countries
like Angola and Zambia which rely on China for some 50% and 30% of their
exports respectively. More concerning is the decision of the policy authority
in China to devalue the Yuan by 2%, with signals of further devaluation if need
be, as the policy makers hope to strengthen the Chinese export market and
weaken capital outflows; a decision which may put more pressure on African
countries.
Whilst the Federal Open Market Committee (FOMC) remained
dovish at its September meeting, leaving U.S. benchmark interest rate at near
zero level, concerns over likely interest rate hike in the last quarter of the
year may prolong the pressure on African currencies, especially as protracted
weakness in commodity prices suggests a long haul for the recovery of African
currencies. Interestingly, elevated interest rates in African markets (monetary
policy rate stands at 24%, 13% and 11.5% in Ghana, Nigeria and Kenya), which
are aimed at stabilizing the local currencies to minimize imported inflationary
pressures on the highly import dependent African economies, is increasingly
hurting output growth. African economies like Nigeria is a typical case study, with
GDP growth outlook of 2.6% in the year and downside risk of sliding into
recession by 2016, if requisite fiscal and monetary measures are not taken to
stimulate economic activities.
dovish at its September meeting, leaving U.S. benchmark interest rate at near
zero level, concerns over likely interest rate hike in the last quarter of the
year may prolong the pressure on African currencies, especially as protracted
weakness in commodity prices suggests a long haul for the recovery of African
currencies. Interestingly, elevated interest rates in African markets (monetary
policy rate stands at 24%, 13% and 11.5% in Ghana, Nigeria and Kenya), which
are aimed at stabilizing the local currencies to minimize imported inflationary
pressures on the highly import dependent African economies, is increasingly
hurting output growth. African economies like Nigeria is a typical case study, with
GDP growth outlook of 2.6% in the year and downside risk of sliding into
recession by 2016, if requisite fiscal and monetary measures are not taken to
stimulate economic activities.
There is a market consensus that commodity prices will remain
weak over the next quarter, a challenge for African economies, given the
long-aged reliance on commodity exports. Whether or not the Federal Reserve in
the U.S. hike interest rate, African currencies will see further pressure, with
attendant implication for imported inflation. Monetary policies will remain
tight as policy makers struggle to defend local currencies and battle inflation
pressures. Pathetically, the government of most African economies are in poor
fiscal positions and thus may remain relatively “helpless” as the global and
domestic shocks hit their economies.
weak over the next quarter, a challenge for African economies, given the
long-aged reliance on commodity exports. Whether or not the Federal Reserve in
the U.S. hike interest rate, African currencies will see further pressure, with
attendant implication for imported inflation. Monetary policies will remain
tight as policy makers struggle to defend local currencies and battle inflation
pressures. Pathetically, the government of most African economies are in poor
fiscal positions and thus may remain relatively “helpless” as the global and
domestic shocks hit their economies.
Where do African countries go from here? Most macroeconomic
variables suggest a challenging quarter ahead, but painful fiscal consolidation
and requisite reforms may change the continent’s fortune, with the prospect of
redefining Africa’s place and role in the global market. It will be a long haul
but improving democracy/governance, better resource management and increasing
number of quality human capital should help achieve the required change in
Africa…this will require some short term pains, which perhaps are inevitable
prices of future gains.
variables suggest a challenging quarter ahead, but painful fiscal consolidation
and requisite reforms may change the continent’s fortune, with the prospect of
redefining Africa’s place and role in the global market. It will be a long haul
but improving democracy/governance, better resource management and increasing
number of quality human capital should help achieve the required change in
Africa…this will require some short term pains, which perhaps are inevitable
prices of future gains.
