Weathering the storm

Msafiri’s business columnist Nkem Ifejika predicts that Africa’s growth may slow in 2015, but with some readjustment, it’s not all bad news… 

BusinessThe reduced price of oil has become a liability for governments in Africa that rely on oil production for their spending plans, and it has also made surefire exploration projects that bit more precarious. A Chinese slowdown means that countries that relied on the East to buy their commodities no longer have an eager buyer on standby. As the United States Federal Reserve continues to ‘taper’ its quantitative easing programme, a knock-on effect could be weakening currencies in Africa. For a continent which is still heavily reliant on imports, this is bad news. 2015 could be the year of Africa-Rising-just-a-little-bit.

It doesn’t have to be that way. Granted, growth will not be as stellar, and investors might not be falling over themselves to give their money away with the same abandon as before. But there’s an opportunity for ‘quality’ growth.

The rebasing of Nigeria’s economy last year showed that other sectors of the economy had grown and oil was no longer such a dominant part of GDP. However, government sources of revenue have failed to keep up with that diversification. The Nigerian government pegs its budget to the (unstable) price of oil, which is a source for about 70 per cent of revenue. Meanwhile oil and gas only form 14 per cent of GDP. Angola is no better, relying on oil for about 80 per cent of government revenue. Such statistics are no basis for a well-balanced economy.

There’s also an opportunity to remove inefficient and expensive petrol subsidies. Helping out citizens is not in itself a bad thing, but subsidies often benefit those who don’t need it. These imbalances need to be corrected, and the opportunity to do so has now presented itself. No doubt it will be difficult in the short term, but in the long term, a crucial readjustment would have taken place.

Africa is still dependent on the importation of finished goods. And when currencies weaken, people who were already relatively poor have to spend more to buy foreign products. The list of things that should be made at home but are imported is as long as the Nile. There is a need to make more things at home  – and crucially, a weaker currency makes it easier to export. I don’t expect thousands of businesses to spring up over night and start selling smartphones to foreign markets, but I do expect some to take advantage of weaker local currencies.

At the time of writing, growth for Africa in 2015 is projected to be four percent. It’s not the stellar performance we’ve come to expect over the past few years. But there’s no need for tears. There’s a chance to ditch the noose of commodities, to realise that China is human too and cannot always be relied upon to buy every commodity. Perhaps growing internal markets are the solution to a slowing China. Overall, there is a need to acknowledge that growth and progress are not inevitable. Shocks will occur that question the viability of new oil and gas discoveries in countries such as Uganda and Mozambique. And poster boys such as Ghana can soon find themselves cap in hand at the IMF. Africa will still rise, but there’ll be headwinds along the way. Be prepared, hold tight, and stand firm.