What lies ahead for Africa in 2020?

African Business looks forward to 2020, with analysis of political and economic trends and predictions of what lies ahead from the region’s top economists.

2019 has been a year of cataclysmic political and economic change on the continent. Revolutions convulsed Algeria and Sudan, deposing long-time strongmen Omar al-Bashir and Abdelaziz Bouteflika in April. Public anger and discontent stretched to the southernmost reaches of the continent in September, as mobs looted foreign-owned stores in South Africa, while other citizens took to the streets to protest a spate of violent attacks against women. It was hardly ideal timing for embattled President Cyril Ramaphosa, who was forced to avert his gaze from the expensively hosted World Economic Forum.

Meanwhile, as regional policy-makers scrambled to make sense of the continental free-trade deal, which got its final ratification from Gambia in June, Nigeria raised the drawbridge, halting the free movement of goods in an anti-smuggling crackdown that sent shockwaves through west Africa.

South Africa’s story

In South Africa, a year of hope has turned into a frustrating continuation of economic and institutional inertia as Ramaphosa struggles to turn promises into reform. Growth continues to stall while unemployment languishes. But the new year will see more storm clouds gathering as the country faces the real prospect of a credit downgrade if the government’s new budget, released in February, fails to deliver a viable turnaround plan that promises big results to international investors. 

If South Africa’s debt falls into sub-investment grade, it could spark a sell-off by institutional investors across the the globe, including pension funds, hedge funds and banks, says Chris Vandome, a research associate at Chatham House’s Africa program.

“That could result in $15 billion leaving South Africa effectively,” says Vandome, citing figures released by Bank of New York Mellon. This enormous financial fallout would raise borrowing costs at a time when the country desperately needs loans and portfolio investment to balance its deficit.

With South Africa’s growth projections lowered from 1.2% to 0.7% by the International Monetary Fund (IMF) this year, and popular discontent brewing, there is little room for error. 

A man screams holding a stick in front a burning piece of furniture during a riot in the Johannesburg suburb of Turffontein on September 2, 2019 as angry protesters loot foreign-owned shops. (Photo by Michele Spatari / AFP)

One thing that could boost South Africa is the easing of trade tensions following a mooted deal agreed in December by Washington and Beijing.

A pick-up of global trade after a poor year could provide a lift for commodities such as South African palladium, which provides 40% of the global market, says Charlie Robertson, the global chief economist at Russian investment bank Renaissance Capital.

“We’re seeing palladium prices reach record highs in South Africa, at least in the past few years, with platinum and palladium making up 10% of their exports.” 

But only meaningful political change will truly help South Africa to achieve much needed growth. The crises at state-owned power utility Eskom, and South African Airways, which was placed in receivership, offer a final chance for the government to impose competent leadership and remove the stain of underperformance and corruption. Ramaphosa has had to tread carefully in a faction-ridden ANC, but he no longer has the luxury of time.  

Elsewhere, Southern Africa’s second largest economy, Angola, is expected to struggle in 2020, shrinking 1.9% compared to a 3.6% contraction in 2019, according to the Economist Intelligence Unit. Continuing oil reforms following the end of the dos Santos era could bode well for the future, however.

Turning its back on the world

Meanwhile in West Africa, Nigeria’s re-elected President Buhari has unwisely escalated anti-trade policies and import restrictions. The government moves, which benefits only a few industrialists, are shaping the economic climate of Africa’s biggest economy with dramatic spill-over effects on neighbouring countries like Benin and Togo, warns John Ashbourne, Capital Economics’ Africa economist. 

In August, Buhari ordered the central bank to stop providing foreign currency to food importers to spur domestic agricultural production. By October, he closed the country’s porous borders to all imported goods without warning, in an apparent bid to curb rampant smuggling and boost rice production.

“That’s one big political event that really has changed the fortunes of that whole part of the continent if not the continent as a whole,” Ashbourne says.

Nigeria’s Central Bank governor Godwin Emefiele told a bankers’ dinner in Lagos in November that he intended to advise the government to maintain border closures to boost economic output in the non-oil sector.

Such efforts to industrialise the economy through Latin-American style import substitution is a policy that precedes Buhari, and is expected to continue next year and beyond his tenure, which ends in 2023, says Robertson.

“I don’t think Buhari will change his views on this, and if Nigeria carries on with this Latin American approach, it is likely to produce less growth then if they chose an open more export orientated model.” 

Elsewhere in West Africa uncertainty over Cote D’Ivoire’s October elections is spooking investors, as an unpredictable outcome looms over President Alassane Ouattara’s pledge to run for a third term.

Investors will be more relaxed about Francophone Africa’s other key market, Senegal, where the reelection of Macky Sall in February promised continuity for international oil companies, and sound oversight of the multi-billion hydrocarbons sector, which expects to see first production in 2022.

CFA countries will continue the trend of “investment led growth, good stories, and responsible policy making from the presidents,” in the year ahead, Robertson says. 

Stars of the East

Meanwhile in East Africa a transport race is unfolding. Tanzania and Rwanda are making an aggressive push to depose Kenya as the regional transit hub. Tanzanian president John Magufuli is building a $2.5bn bullet train with the help of Rwanda in a bid to capture East Africa’s inland trade and drive it through the port of Dar es Salaam. The project, expected to be completed in 2022, will run from the western Tanzanian town of Isaka to the Rwandan capital Kigali, in direct competition with a rival route in Mombasa just 500km up the coast.

Tanzania’s railway is the “raison d’être of Kenya’s railway,” says Aly-Khan Satchu, the CEO of Nairobi-based investment advisory firm Rich Management.  

Impression of Kenya’s Standard Gauge Railway.

Compromising Kenya’s regional transit routes further is oil-rich Qatar, who are fronting the funds for Rwanda to build a gleaming international airport in Kigali, in return for a 60% stake in the project and a foothold in East Africa’s aspiring service hub.

“You can imagine the Qataris will build something really serious,” that will represent “big competition for Kenya,”whose airline lies in tatters, Satchu says. Kenyan Airways posted record losses in 2019, as it flounders with pilot shortages and an industrial dispute.

“Kagame is more nimble. He’s quicker, and he makes optimal economic decisions much faster, and that’s his big advantage. I think Kenya is paying the price for that.”

In the year to come, Ethiopia and Tanzania will continue to grow at 7.2% and 4.5% respectively, the IMF predicts. Their sophisticated economies will be tempered only by liquidity constraints and political contestation with impending elections in both countries. Ethiopia’s election is scheduled to take place by May, while Magafuli, whose protectionist policies have spooked investors and partners, plans to run for re-election in April.

Abiy’s prospects for re-election are  bright. The energetic, reform-minded leader has succeeded in sketching out a positive vision for Africa’s future, which resonates with youth. “Forget Ramaphosa, and [Zimbabwe’s president Emmerson] Mnangagwa, they’re yesterday’s dinosaurs. [Abiy] is the guy who is able to connect with people of the new generation, which is 99.5% of Africa,” Satchu says. That was confirmed with Abiy’s stunning Nobel Peace Prize win for his successful efforts in resolving a decades long conflict with Eritrea. Yet ongoing political and ethnic tensions tied to his dramatic reforms could test Abiy, and the country, to the limit in 2020. 

The IMF is poised to approve landmark $3bn loan which could offset a liquidity crunch in the cash-strapped nation, and give it a great deal of momentum as Abiy seeks to keep ethnic nationalist forces at bay, and win the election. Business reforms, including privatisations, remain on the cards.

“If the prime minister can hold it together, Ethiopia will be a star performer over the next two to three years,” says Satchu.

In Kenya, President Uhuru Kenyatta has overseen growth estimated at 5.6% and will hope to continue growing the economy. The IMF has praised the country’s progress, but warned in November of an outsized budget deficit and the need for further tax and expenditure reforms to help the country continue on its path.  

Making it – North Africa’s industrial revolution

In North Africa, Morocco’s manufacturing sector is barrelling ahead as it continues to attract foreign direct investment. The sector contributes more than 20% to the country’s GDP, and employs 11% of the labour force. “It’s leading the second industrialisation wave in Africa,” says Robertson. “The question for me is do we see Tunisia and Egypt follow that?” 

With Tunisia’s elections out of the way, and Egypt’s prospects buoyed by a stable and strong currency, which has seen inflation drop to 3.6%, international investors may be tempted to build new factories in the country. This could harness Egypt’s 100m people into a manufacturing power-house that feeds into Europe, Robertson says.

“That’s something I’m certainly going to be watching in 2020.”

Down about debt

Africa’s three largest economies, which account for almost 40% of the continent’s GDP, will continue to disappoint next year, causing sub-Saharan Africa’s growth to reach 3.2% in 2019 and 3.6% in 2020, according to the IMF. While growth in Africa’s fastest-growing economy Ghana, is expected to fall from 7.5% in 2019 to 5.6% in 2020 in anticipation of erratic spending during the election cycle. Ethiopia and Cote D’Ivoire tell a much different growth story from the region’s largest economies, says John Ashbourne from Capital Economics.

A major trend that will carry over next year is how African countries will manage their debt moving forward. The IMF warns that while the continent’s debt load is stabilising, indebted countries could face headwinds as slowing global growth weighs on exports. 

Seven African countries – including Mozambique, South Sudan and Zimbabwe – are in debt distress, according to the IMF. nine others, including Ethiopia, Ghana and Cameroon, are at high risk of debt creeping up to distressing levels.

In Kenya “the penny has dropped now that the debt is in amber territory,” says Satchu.

“The Africa continent as a whole has got to get a bit more realistic about how they are going to manage their debt moving forward. We’re going to see some crises developing in the next 12 months.”

As government looks beyond 2020 they are also waking up to the reality of the long road ahead in implementing the African Free Trade Agreement, says John Ashbourne. “It’s a very long process and its not going to kick-off any time soon.”

The Future of African Investment

The key hubs for investment in 2020 are expected to be Morocco, Egypt, Ghana, Cote D’Ivoire, Namibia, Botswana, Rwanda, Ethiopia, and Kenya, predicts Rob Hersov, the CEO of investment platform Invest Africa.

“Not South Africa until President Ramaphosa starts to send the Zuma, Gupta, Molefe mob to jail and shows he can fix Eskom and the SOE’s,” he adds.  

With the continent’s two largest economies, South Africa and Nigeria growing on average about 1-2% for the past five years, they’re just not producing the figures that will excite global investors, says Charlie Robertson. Will we see investor appetite in Africa pickup in 2020? 

“Not when South Africa is on the verge of recession. And not when Nigeria’s growth is as sluggish as 2-3%,” says Robertson.

“In both cases, GDP has been growing below population growth now for the last four years. So people are getting poorer. That’s not the mark of an exciting continent that people want to pour money into.”