This week, Bloomberg’s senior reporter and bureau chiefs from across the continent weighed in on key things to watch in 2020
TRADE AMBITIONS
Many countries in Africa face bleak economic prospects, including its biggest economies, South Africa and Nigeria. But the continent can’t be accused of lacking ambition.
If all goes to plan, the world’s largest free-trade zone by area will start in July. The idea is to gradually integrate the economies of 53 of the continent’s 54 nations (Eritrea hasn’t signed up) to create a zone covering 1.2 billion people, with a combined GDP of $2.5 trillion (R35.8 trillion).
The African Union-led agreement is certainly needed. Only 15% of Africa’s trade is between nations on the continent, compared with more than 70% with Europe. Myriad ever-changing regulations, snarled border posts and poor infrastructure are to blame.
For the African Continental Free Trade Area to succeed, many nations will have to put aside their protectionist tendencies and lessen dependence on customs revenue. To start, the big winners will be countries with an industrial base – most notably South Africa and Egypt – that can be used to sell manufactured goods to the African middle class.
The continent’s biggest economies must ensure their poorest peers aren’t left behind.
NIGERIA: DOWNSIDE RISK
Nigeria’s lucrative carry trade is losing its charm and is putting the naira at risk of devaluation.
The country’s central bank offered rates – once as high as 18% on bills known as open-market operations – to boost reserves and protect the naira. About 17 trillion naira (R669 billion) of these securities are now outstanding, with about a third held by foreigners.
A chunk of open-market operation notes mature early next year and it’s uncertain whether foreign holders will renew. Yields on the securities are now lower at an average of 13% and liquidity is limited after the central bank barred local pension funds from investing.
Dollar outflows from the country are higher than inflows and external reserves are down almost 10% since June. Oil revenues could support the naira if crude prices remain stable. However, Renaissance Capital estimates the currency is 28% overvalued.
The downside risk is high.
GHANA AND IVORY COAST: HISTORY LESSONS
Ghana and Ivory Coast will need to show they’ve learnt from the mistakes of previous ballots as west Africa’s second- and third-largest economies prepare for elections.
President Nana Akufo-Addo’s commitment to fiscal discipline will be severely tested in Ghana, which has a record of budget blowouts in election years. The president will most likely compete with predecessor John Mahama in the December polls.
In Ivory Coast, stability is at risk at a time when political alliances are shifting. President Alassane Ouattara, who has yet to say whether he’ll seek a third term, could face his biggest challenge from former allies. At stake is an economy that’s grown by more than 7% annually since 2012.
Ivory Coast’s last power transition was in 2011, when Ouattara first took office. At least 3 000 people died then in five months of post-election violence after former president Laurent Gbagbo initially refused to accept defeat.
Now comes the hard part for Kenyan President Uhuru Kenyatta. A decision to scrap interest rate caps jump-started loan talks with the International Monetary Fund (IMF), which wants him to increase revenue to keep up with spending pressures. But, despite revenue shortfalls, Kenyatta says it’s imperative to keep funding projects in manufacturing, housing, healthcare and farming for economic growth to continue at above 5%.
To do so, his administration is willing to allow debt to rise nearly 10% to an anticipated 6.7 trillion shillings (R947 billion) next year. IMF managing director Kristalina Georgieva voiced concern about Kenya’s rising borrowings in November.
After doubling its debt ceiling to almost match the size of its $100 billion economy, the government will need to show fiscal discipline. – Bloomberg