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Africa to witness stellar growth (2.3%) and falling inflation (8.1%)

Economic recovery in SSA is expected to be sharply higher, rising from -3.8% in 2020 to 2.3% in 2021. The effective expansion is 6.1%. However, when compared to the US (6.4%), China (8.4%) and India (12.5%), the shape of the recovery would be considered modest. Growth will be mainly driven by the East African region. Kenya (7.6%), Uganda (6.3%) and Ethiopia (2.0%) owing to the recovery in horticulture, services and agriculture sectors. Ironically, the largest economies – Nigeria (1.2%), South Africa (3.1%) and Angola (0.4%) would remain laggards, indicating that these countries will again underperform the SSA growth average. More noteworthy is that SSA inflation will fall to 8.1% from 9.9% in 2020 due to the stability of the South African Rand compared to the Naira.

Fast growth but a looming debt trap

“A debt trap is the consequence of a systematic recourse to debt that thrives in contexts of increasing inequality and reduced government intervention” – Claudia Sanchez Bajo & Bruno Roelants

Total external debt in SSA is estimated to jump by 8% to $720.1bn in 2021 from $666.3bn in 2020 as borrowing from multilateral and bilateral creditors climb. Nigeria’s share is a miniscule 4.6% ($33.35bn as at Q4’20). With the US inflation at an 11-year high of 2.6%, an increase in US interest rates is now imminent. If this happens, SSA countries could fall into a debt trap and contend with excruciating debt service costs. The borrowing loop is expected to continue, which would undermine the ability of governments to spend on infrastructure development and social intervention programs. Notwithstanding, some African countries are scrambling to the international capital markets for Eurobond issues – Nigeria ($6.14bn), Ghana ($5bn) and Kenya ($7.3bn)

Policy makers need to focus on borrowing to complete existing infrastructure projects and increase total factor productivity.

This edition of the FDC Afriscope highlights some issues on the covid-19 vaccine perception in Africa, insecurity and external debt. It also provides interesting economic and political updates for your delight.

Do enjoy your read!