Throughout the next decade, Africa will be a key investment region. In our recent webinar, leading experts from South African Reserve Bank (SARB), Old Mutual Multi-Managers and the Attorney of the High Court of South Africa explored how African economies will bounce back from COVID-19, the impact of the African Continental Free Trade Area (AfCFTA) – and more.
- The largest economies in Sub-Saharan Africa are growing faster in the wake of COVID-19, but they must also become less reliant on commodities for future growth
- The pandemic has brought up questions about how African economies can leverage their advantages for potential growth – and better integrate and diversify their productions.
- As the African Continental Free Trade Area is implemented, smaller countries may not get to immediately reap the benefits.
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COVID-19 ignited the largest global recession most of us have ever witnessed.
More than one year in, economies around the world are now looking for ways to recover – whether these bounce backs are driven by trade, diversification, or simply an increase in household spending.
In our latest webinar, Africa in Recovery: Economic Outlooks, we explore how African economies will perform in the coming years, in the wake of the COVID-19 pandemic. We also examine the opportunities that lay ahead for countries across the continent.
“At Refinitiv, we believe that Africa is likely to be one of the most important – if not the most important – investment hotspots over the next 10 years,” said Oliver Dancel Fiszer, Refinitiv Head of Economic Content, who moderated the webinar.
To learn more, he sat down with a panel of experts who shared their insights on international trade, investment and economic recovery, including:
- Asmita Parshotam, an international trade and development expert and Admitted Attorney of the High Court of South Africa
- Izak Odendaal, an investment strategist at Old Mutual Multi-Managers
- Dr. Chris Loewald, the head of economic research department at the South African Reserve Bank (SARB)
In this article, we’ll outline their biggest takeaways from the discussion.
Watch – Africa in Recovery: Economic Outlooks
COVID-19: outlook and challenges for African economies
To begin the webinar, Dr. Chris Loewald took us through how South Africa – the continent’s second-largest economy – has responded to lockdowns and COVID-19.
“South Africa in our view had a pretty textbook macroeconomic adjustment to this shock,” he said. The country suffered a decline in the consumption of consumer and capital goods, for example. But there will be a bounce back.
He continued: “In particular, we see households coming back very strongly, and we’ve pencilled in growth of 3.8 percent for next year.” Although, the same can’t be said for the country’s GDP. “We don’t really see 2019 levels being hit until 2023. So it’s going to take some time,” Loewald added.
One plus, though, is that South Africa benefited from trade.
“South Africa’s terms of trade shot up again. This is partly because China’s recovery was faster during COVID-19 – or its own bounce back from COVID-19 was faster,” said Loewald.
There was also strong and accelerated demand for vanadium and rhodium; South Africa is the largest rhodium producer in the world.
Now, could South Africa’s economic recovery impact the rest of Sub-Saharan Africa? There is a correlation, said Loewald.
“What one would want to see, of course, is the largest economies in Sub-Saharan Africa growing faster in the wake of COVID-19, and helping to pull along in a locomotive sort of way other countries,” he said.
But as vaccinations lag across the region, so will the economies. “From early 2023 onwards, there’s expected to be widespread vaccination coverage. So the drag on economic activity caused by that slow vaccination is going to go on for some time.”
Diversification from reliance on commodities
GDP growth forecasts for the next decade show Nigeria – Africa’s largest economy – and Ethiopia, the fastest growing and poorest economy in the region, have similar growth rates.
Asmita Parshotam said she’s not surprised. “Some countries have diversified better than other countries have across the continent. I think that obviously plays a role,’ she said.
“Different regions across the continent are also more integrated, or better integrated, among each other. And endless different levels of integration also feed into the type of growth that some countries tend to experience.”
While growth tends to mimic commodities, she said: “We cannot be relying on commodities going forward.” She added that something as simple as PPE imports brings up the question: why aren’t we producing these ourselves if we have the manufacturing capacity?
“The pandemic has brought these questions back to the forefront and has heightened the need… to look at what we can do internally. Where do we see potential for growth on the continent? Where can we leverage our own advantages? And how do we set ourselves up for the next time something like this happens?”
The impact of COVID-19 on African stock markets
The webinar also explored the impact of COVID-19 on major African stock markets. These, for the most part, have followed the same trajectory as those in developed markets.
COVID-19 impacts on markets: major African stock markets and 10yr government bond yields
“An important distinction here is between South Africa and the other African markets. In South Africa, the market is dominated by global multinationals,” said Izak Odendaal. Many of these are big mining companies, he explained.
“Other markets tend to be dominated more by companies that sell into the domestic market,” he added. “They tend to be dominated by banks, by cell phone companies, by consumer staples. So there you have much more reliance and exposure to the domestic economy.”
Nigeria is a great example, said Odendaal. “The economy is driven so much by the oil price. And yet the biggest companies listed on the stock exchange, they are not oil companies.
“In this instance, there’s very much a divorce between the big macro drivers at the national level, versus some of the specifics in terms of how the companies operate and the drivers of these share prices.”
Will the AfCFTA be a game changer?
The African Continental Free Trade Area (AfCFTA) is the world’s largest free trade area, representing 1.3 billion people. Trading under the agreement began in January.
According to the World Bank, it is meant to “help usher in the kinds of deep reforms necessary to enhance long-term growth in African countries.”
But Parshotam argues that not all countries may get to reap the benefits equally.
“So with all trade deals… it can be a general win in terms of welfare gained or enhancing regional trade. But of course there will be specific sectors or industries that lose out as a short-term repercussion,” she said.
“The reality is that there is going to be… the larger players and larger economies that will get the benefits first. And then whether, and how, the implementation happens for smaller countries will really tell whether the AfCFTA becomes this deal-changer for the continent – or whether it falls by the wayside.”
Want to learn more about Africa’s economic outlook? Refinitiv Datasteam, the world’s most comprehensive financial historical database, features one million economic time series on Africa alone.
The data is sourced from central banks and key national institutions to help you spot investment opportunities – and enables you to cross-compare data with international sources like the OECD, African Development Bank, the IMF, and more.