When a Greek man is at the tipping point, the usual slogan is “Quo Vadis”. In the Chinese parlance, it is “Ni
Qu NaLi”, which connotatively means “where do we go from here”. The past three quarters of the year have
been indeed challenging for African countries and the near term prospect looks very bleak.
July - September 2015 •
The Lion King
• 11
By Abiola Rasaq
All eyes on China;
Ni Qu Nali?
W
hilst noting the domestic challenges of insecurity,
energy crisis, weak fiscal position and high pub-
lic debt overhang in the African economies; the
contagious impact of global “economic stagnation” is tak-
ing notable toll on African economies. Even as increased
integration of the African economies into the global market
has a positive impact on growth, the overwhelming depen-
dence of African countries on China and a few developed
countries increasingly exposes Africa to external shocks,
particularly in the form of lower commodity prices, weak
financial flows and moderated grants and aids.
After an impressive feat in the last two decades, the
Chinese economy is slowing down, with the GDP growth
taking a breather to sub-7.5%, the lowest level in almost 20
years. Further reinforcing the slow growth number and sug-
gesting weaker demand for raw materials (i.e. basic com-
modities, which are the major exports of African countries) is
the weak PMI, which settled at a six-year low in September.
The slowdown in China may further dent the prospect of
output growth in a number of African countries, especially
for countries like Angola and Zambia which rely on China
for some 50% and 30% of their exports respectively. More
concerning is the decision of the policy authority in China
to devalue the Yuan by 2%, with signals of further devalu-
ation if need be, as the policy makers hope to strengthen
the Chinese export market and weaken capital outflows; a
decision which may put more pressure on African countries.
Whilst the Federal Open Market Committee (FOMC)
remained dovish at its September meeting, leaving U.S.
benchmark interest rate at near zero level, concerns over
likely interest rate hike in the last quarter of the year may
prolong the pressure on African currencies, especially as
protracted weakness in commodity prices suggests a long
haul for the recovery of African currencies. Interestingly,
elevated interest rates in African markets (monetary policy
rate stands at 24%, 13% and 11.5% in Ghana, Nigeria and
Kenya respectively), which are aimed at stabilizing the local
currencies to minimize imported inflationary pressures on
the highly import dependent African economies, is increas-
ingly hurting output growth. African economies like Nigeria
is a typical case study, with GDP growth outlook of 2.6% in
the year and downside risk of sliding into recession by 2016,
if requisite fiscal and monetary measures are not taken to
stimulate economic activities.
There is a market consensus that commodity prices will
remain weak over the next quarter, a challenge for African
economies, given the long-aged reliance on commodity
exports. Whether or not the Federal Reserve in the U.S. hike
interest rate, African currencies will see further pressure,
with attendant implication for imported inflation. Monetary
policies will remain tight as policy makers struggle to defend
local currencies and battle inflation pressures. Pathetically,
the government of most African economies are in poor fis-
cal positions and thus may remain relatively “helpless” as
the global and domestic shocks hit their economies.
Where do African countries go from here? Most macro-
economic variables suggest a challenging quarter ahead,
but painful fiscal consolidation and requisite reforms may
change the continent’s fortune, with the prospect of rede-
fining Africa’s place and role in the global market. It will be
a long haul but improving democracy/governance, better
resource management and increasing number of quality
human capital should help achieve the required change
in Africa…this will require some short term pains, which per-
haps are inevitable prices to pay for future gains.
Q4 Outlook
|
Business
