Sub-Saharan Africa resilient to lower oil prices

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This is according to Fitch’s latest Sub-Saharan Africa (SSA) credit overview, which stated that despite growth improving from 4.5 per cent in 2014, it will not be evenly spread across the region.

A country’s ability to grow will depend on its commodity dependence, exposure to Chin, domestic challenges and capacity to invest.  

Growth in SSA’s largest economy, Nigeria, has been revised down from 6.4 per cent to 5.2 per cent for 2015 as a result of lower oil prices and tighter policy. 

(WATCH VIDEO: Highlights of Fitch rating in Nigeria’s banking sector)

This is expected to be offset by an uptick in South Africa’s growth, although challenges in the electricity sector may impact the country’s performance.

Oil importers and countries with fiscal space to invest are likely to grow robustly.

Lower oil and agricultural prices has ensured that inflation is moderated across the region.

“Public finances will remain expansionary, with the average budget deficit rising to 4.9 per cent of GDP in 2015, from 3.9 per cent in 2014 and 0.8 per cent in 2011. Over the same period, the average current account will swing from surplus into deficit,” said Fitch.

On the other hand, lower oil prices will dampen growth in Angola, Nigeria and Gabon, resulting in external and fiscal balances worsening.

“However, most SSA countries are significant oil importers – oil makes up around 20 per cent of the import bill in Kenya, Cote d’ Ivoire, Seychelles and Ethiopia – and will therefore be beneficiaries of lower prices,” continued the statement.

Fitch believes that foreign investment and export performance could be undermined in Zambia and Mozambique, due to lower commodity prices and close trade ties with China.

Domestic challenges in Ghana and South Africa could weigh on ratings over the coming year.

“Growth in South Africa will be held back by challenging labour relations, electricity shortages and weak private sector investment.”

(WATCH VIDEO: Fitch keeps S.Africa’s outlook negative)

Fitch said that fiscal consolidation in the country will depend on keeping public sector wage growth in line with inflation.

“In Ghana, deteriorating confidence, a shortage of electricity and lower commodity prices will dent growth and the country’s ability to raise revenue in the year ahead, undermining the credibility of the government’s deficit reduction strategy,” added Fitch.  

Countries with ambition infrastructure spending programmes such as Kenya, Uganda and Ethiopia, are set to continue growing robustly. However, balancing this investment against debt sustainability may be a challenge for countries like Kenya, Lesotho and Mozambique who already have high government debt levels.

(WATCH VIDEO: Fitch affirms Ghana at ‘B’ with negative outlook)

“SSA ratings will be driven more by success or failure in promoting macro stability and structural reform than commodity price changes. The Seychelles and Rwanda are good examples of sovereigns that have improved their policy frameworks and governance, leading each to be upgraded two notches since their ratings were assigned. We placed Zambia and Cote d’Ivoire on Positive Outlook in 2014 and if the policy environment continues improving both could eventually be upgraded.”