With a total projected Real GDP growth of 3.4% in 2021, Africa is a continent that is quickly developing. Much of this growth is bounceback reflation from the recent recession, in which tourism, commodity prices, and consumer demand is set to restore back to normal levels after taking a hit. With the spot FX rate of the Rand rallying, African currency is undergoing a resurgence along with rapid infrastructural developments.
Prior to the 2020 pandemic, Ethiopia was experiencing the most growth, with a 7.5% and 8.5% expansion in 2018 and 2019 respectively. Marginally behind was Rwanda, Côte d’Ivoire, and Ghana.
Initially, Africa seemed vulnerable to Coronavirus due to its underdeveloped healthcare infrastructure, but we have since learnt that the entire continent – which is home to 1.3 billion people – has had fewer COVID-19 deaths than the UK alone. Whilst it remains somewhat unsolved, it’s thought to be a mixture of early lockdowns, a young population, and the warmer weather.
Whilst there will undoubtedly be cases of under-reporting of COVID-19 deaths, Africa was hit only fractionally as hard as Europe and North America from the pandemic. However, whilst this is true for COVID-19 cases, it didn’t escape the claws of recession. Ethiopia, for example, is estimated to have shrunk between 5.6% and 16.7% during the pandemic – of which the vague and large range of this estimation is a mere reflection of the uncertainty that riddles the current global economy.
It was actually sub-Saharan Africa that fared the best, both in terms of Covid-19 cases and recession, with a contraction smaller than the global average. However, this isn’t something celebrated by African leaders, such as Ken Ofori-Atta, who are worried that recovery will take longer in Africa.
The biggest worry is that whilst the developed world is rolling out vaccines and undergoing extremely heavy fiscal stimulus, African countries have no such luxury. So whilst the pandemic has been less extreme in the Southern Hemisphere, it may be drawn out for much longer. To add to this, school closures hit Africa much harder, who couldn’t react with the same immediacy of home-study online lessons.
Whilst many African currencies have struggled from this economic fallout, being comparatively less hurt by the pandemic has done favours for some currencies. The African Rand, for example, has been rallying due to western speculation. This is primarily because of the rising risk appetite for emerging markets, in which we have seen a consistent rise since the March crash of 2020. Again, the out-of-favor USD also plays a part, along with the US experiencing a larger economic contraction.
Which African countries trade the most?
South Africa is far and away the largest exporting country of the continent, with almost $100 billion exports in 2018. Nigeria is a clear second, whilst Angola and Algeria are a close third and fourth.
The rise in currency volatility that both the West and African countries are experiencing isn’t particularly conducive towards prosperous trade. Importers want certainty over exchange rate, and whilst hedging is possible, many turn to domestic trade to mitigate currency risk and the hassle of hedging.
Furthermore, it’s actually the weakening of a currency that can help with exports due to your currency, and thus products, being cheaper. However, Africa on the whole imports more than they export from the EU, so strengthening currencies such as the Rand will be beneficial. Given that the EU trades predominantly with the north of Africa, the Morrocan Dirhams rally against the Euro will also be beneficial.
Which African countries are expected to “break through” in the next 2 years?
Senegal is a country that is becoming increasingly talked about when it comes to near-future speculative performance, and prior to the pandemic was set for the highest GDP growth over the next 3 years. With widespread poverty still, Senegal is classed as a Least Developed Country, and the pandemic has halted growth to a standstill.
Still, with a lot of room for growth and a strengthening mining, construction, and tourism economy, Senegal is still tipped to be a breakthrough economy that will look to reduce the gap between its prosperous neighbours.
Morocco receives the most tourists out of any African country (12 million per year). This is perhaps the biggest reason behind its estimated 6.6% GDP contraction during the pandemic, as tourism has been completely cut off. However, with the developed world close to being fully vaccinated, we are expected to see growth and tourism returning to Morocco over the next couple of years.