A period of high metal and energy prices is typically good for resource-rich sub-Saharan African (SSA) economies, but that’s not the case for the region now, during a bullish commodity cycle.

Instead, SSA economies are expected to limp towards recovery as vaccination rates remain low and many economies have yet to recover from COVID-19.

The International Monetary Fund’s latest forecast expects sub-Saharan Africa region to grow by 3.7 percent in 2021 and 3.8 percent in 2022, as rising commodity prices and robust agriculture productions are countered by new waves of the pandemic, structural challenges and high debt levels.

“[Sub-Saharan Africa's] recovery is expected to be slower than in advanced economies, leading to a widening rift in incomes. This divergence is expected to persist through the medium term—partly reflecting different access to vaccines, but also stark differences in the availability of policy support,” the IMF said in its latest report.

Key African exports such as copper, cobalt, lead, manganese, nickel and zinc are enjoying a price boom, and food commodities such as coffee, sugar and wheat have also seen record high prices this year, while crude oil, natural gas and coal prices are resurgent amid a global economic turnaround.

But African economies have struggled to ride the commodity wave due to challenges to the boosting of production across much of the commodity complex.

However, portfolio inflows into the region have turned positive, with $4.4 billion flowing into emerging and frontier SSA markets in the first seven months of the year.

“Although foreign direct investment declined by 12 percent to $30 billion in 2020 (faring better than in other regions), it is expected to grow only modestly in 2021 and gain greater momentum beyond 2022, in line with an expected rise in commodity demand, the approval of key projects, and the finalization of the African Continental Free Trade Area’s Sustainable Investment Protocol,” the IMF said.

THE UNVACCINATED

Despite the region’s immense long-term potential, the region’s poor vaccination rates impede its short-term prospects.

The World Health Organization (WHO) forecasts that only three of Africa’s 54 nations are expected to hit the year-end target of fully vaccinating 40 percent of their people unless efforts to accelerate the pace take off. Only Seychelles and Mauritius, two small island nations in SSA, were able to meet their targets.

The region is also facing syringe shortages, which is exacerbating the situation.

“The looming threat of a vaccine commodities crisis hangs over the continent. Early next year COVID-19 vaccines will start pouring into Africa, but a scarcity of syringes could paralyze progress,” said Dr Matshidiso Moeti, WHO's Regional Director for Africa. “Drastic measures must be taken to boost syringe production, fast. Countless African lives depend on it.”

The continent has fully vaccinated 77 million people, or just 6 percent of its population, compared to more than 70 percent of high-income countries who have already vaccinated more than 40 percent of their citizens.

The pandemic has also pushed 30 million Africans into poverty, which has further stretched government resources to support the most vulnerable at the expense of spending on growth projects.

“As the pandemic has continued, authorities in sub-Saharan Africa have faced an increasingly difficult and complex policy environment,” the IMF noted in its latest report on the region. “Policymakers face three key fiscal challenges: (1) tackle the region’s pressing development-spending needs, (2) contain public debt, and (3) mobilize tax revenues in circumstances in which additional measures are generally unpopular.”

The region’s public debt is expected to decline only slightly this year to 56.6 percent of GDP but remains high compared to a pre-pandemic level of 50.4 percent of GDP.

The IMF notes that half of the region’s low-income countries “are either in or at high risk of debt distress,” with more countries in danger of being unable to service their debt.

STAR ECONOMIES

Despite a cloud over SSA’s prospects, a number of economies are expected to outperform the region.

Botswana is expected to emerge as the fastest growing SSA economy, with GDP expected to rise by 9.2 percent in 2021 and another 4.7 percent in 2022, but it is also coming off a deep 8.5 percent plunge in 2022, the IMF estimates.

Seychelles is forecast to have the second fastest growth in the region, at 6.9 percent in 2021 and 7.7 percent in 2022, making it the fastest growing SSA economy in 2022, according to the IMF forecast.

Both Seychelles and Botswana have benefitted from higher vaccination rates than the regional average.

Burkina Faso is expected to be the third fastest-growing economy this year, with a 6.7 percent expansion and another 5.6 percent uptick in 2022.

Among the major economies, Nigeria will see subdued growth of 2.6 percent in 2021 and 2.7 percent in GDP in 2022, despite a recovery in both the oil and non-oil sector.

South Africa will launch a more robust 5 percent growth in 2021, but the future prospects look subdued for the region’s second largest economy.

“With the pace of structural reforms expected to remain limited and the faster-than-expected rebound in 2021, South Africa will be constrained in its ability to sustain the 2021 growth pace, so growth is expected to slow to 2.2 percent in 2022,” the IMF said.

Angola, another major SSA, economy, will actually see its economy contract this year by 0.7 percent, before rebounding by 2.4 percent in 2022.

“The 2021 growth has been revised downward significantly since April because of falling investments and recurring technical problems in the oil sector,” the IMF said. “Non-oil growth will remain the main driver of economic growth, with commerce and agriculture having recovered strongly to above pre-pandemic levels.”

Long-term investors are looking past the region’s current predicament.

Indeed, there are pockets of growth and opportunities presented by the AfCFTA and infrastructure development, especially in the area of sustainable energy.

“Threat of climate change—and the global process of energy transition—suggest that sub-Saharan Africa may need to adopt a more innovative and greener growth model,” IMF said. “This presents both challenges and opportunities, and it underscores the need for bold transformative reforms and continued external funding.”

(Writing by Syed Hussain, editing by Seban Scaria)

(seban.scaria@refinitiv.com)

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