Despite sustained improvements in private sector activity, public finances remain under severe pressure across Sub-Saharan Africa (SSA). To stabilize its fiscal position without jeopardizing the economy’s recovery by raising taxes, on February 24, the South African government announced extensive spending cuts. Similarly, Nigerian government spending is forecast to contract by 10.5% YOY in real terms in 2021 because of weak tax and oil revenues and rising debt levels. Furthermore, Kenya’s government is unlikely to raise spending meaningfully.
Businesses selling to private sector customers can expect upbeat demand growth in most, although not all, SSA markets, whereas those selling to the public sector will need to closely track government spending plans and ensure local partners emphasize the cost-saving aspects of their product offering.
South Africa: Public spending cuts and electricity shortages will counter a rebound in exports to deliver muted growth in 2021
The economic outlook remains subdued. Growth of just 3.9% in 2021, led by looser COVID-19 restrictions and a rebound in exports, will fail to offset the deep contraction in 2020. Fragile public finances, a depressed tourism industry, and chronic electricity shortages will suppress activity. The economy will not reach its pre-COVID-19 size until 2024.
Nigeria: The economy is expected to recover mildly in 2021, following its exit from a recession in the fourth quarter of 2020
GDP grew 0.1% in the fourth quarter, beating projections and taking the economy out of a recession. Growth for the 2020 full year was -1.9%, performing better than our forecast of -4.1%. The gains in the fourth quarter were led by stronger growth in information and communications technology, real estate, and agriculture and smaller declines in retail and wholesale trade, hospitality, and transport and storage. GDP is expected to grow 1.4% in 2021.
Kenya: Weak public finances cloud an otherwise upbeat growth outlook for 2021
Looking to 2021, the economy is forecast to grow by 5.0%, driven by the IT and telecoms, healthcare, construction, and agriculture sectors. Weak public finances and depressed tourism activity will likely curtail – rather than derail – the economy’s performance in 2021.
Actions for Business Professionals:
- Businesses selling to industrial customers in South Africa —notably mining and manufacturing—should monitor disruptions to electricity supplies (known locally as “load shedding”) that could harm activity and undermine sentiment in these sectors.
- Plan for further naira devaluation in Nigeria. Declining foreign exchange reserves, oil-export constraints, and ongoing dollar shortages will maintain FX pressures.
- Monitor political developments ahead of the constitutional referendum in Kenya on whether to re-establish the post of prime minister, due to be held in June. Protests that cause route-to-market disruption are unlikely, but given Kenya’s recent history of political tensions, cannot be ruled out.
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