With recovery in the two largest economies, we see growth in Sub-Saharan Africa (SSA) accelerating from recent lows in 2020. A still-solid growth performance in East Africa should mean that the subregion remains one of the continent’s out performers.
Uganda: Delay to first oil is likely to weaken near-term growth prospects. We have lowered our 2020 and 2021 growth forecasts to 6.0% and 6.2% (6.2% and 6.5% prior). Although the full impact of the regional locust invasion is difficult to assess, food prices have already been pressured higher – from a low base – by December flooding in eastern Uganda. We now expect the Bank of Uganda to keep its policy rate on hold at 9.0% throughout 2020, having previously seen scope for more easing. Given elections in 2021, and rising caution over the extent of the government’s public financing requirement, we see the BoU adopting a tighter policy stance, with 200bps of rate hikes in 2021.
Razia Khan, Chief Economist Africa & Middle East further added: “Uganda’s fiscal policy challenges will remain centred on raising its low rate of revenue collection. Ideally, the authorities want to see a gradual increment of at least 0.5ppt of GDP in revenue each year. Achieving sustained progress in revenue mobilisation, especially with elections approaching, has traditionally been a challenge.”
Kenya: We expect Kenya’s economy to accelerate 5.8% in 2020, with private-sector credit growth receiving a boost from the loan rate cap removal, and recent central bank easing. A stepped-up effort to deal with delays in government payments will also help, as will the continued focus on growth-supportive ‘Big Four initiatives’. Although the recent locust invasion is a source of potential pressure on agriculture, creating a firm base for sustained medium-term growth will matter much more.
Following the loan rate cap removal, existing bank loans will not reprice higher. However, a more favourable credit growth environment should boost activity, creating more business demand for borrowing – not just for working capital purposes, but for longer-term investment
Razia Khan asserted; “The key test for Kenya in the years ahead will be the strength of its fiscal consolidation intent. Encouragingly, authorities have unveiled plans for further cuts to discretionary spending. Revenue administration measures are already bearing fruit, with an improved record on tax collection in the recent past. While rising public debt has been a key concern – especially with the October 2019 raising of the debt ceiling to KES 9tn, from an earlier cap of 50% of GDP – a sustained and meaningful fiscal consolidation should boost confidence. Kenya’s efforts to replace expensive debt with more affordable sources of financing is encouraging. However, revenue and expenditure measures will need to drive the effort to lower fiscal deficits.”
Tanzania: The bank expects relatively robust growth of 6.5% in 2020 from 6.6% in 2019, with inflation forecast at 4.2% from a low of 3.4% in 2019. Following an easing of monetary policy in 2018-19, private-sector credit extension is starting to accelerate, having previously been in negative territory in 2017. The current account deficit will likely stay wide in 2020. While we have revised our 2019 deficit forecast to 4.2% of GDP (previous 5.6%), we see it expanding in 2020 to 4.5% (5.5%) of GDP due to higher imports. In 2019, the trade deficit increased on higher capital goods and oil imports. This was despite higher gold exports, which increased 26% y/y in the year to September 2019 due to higher prices; and the recommencement of cashew exports.
Sarah Baynton-Glen, Economist, Africa: “Although growth has slowed, the outlook for 2020 remains relatively robust. The government’s blueprint to improve the business environment, accommodative monetary policy, and public infrastructure investment should support growth. Agriculture should be a key growth driver in 2020, and the government is targeting USD 2bn of annual horticulture exports by 2025 (USD 821mn in 2018). Resolution of issues arising from state intervention in agriculture and mining should also provide a more positive backdrop to growth in 2020 and support Tanzania’s FX market, with greater cashew exports and the expected resumption of gold and copper concentrates exports. Elections will be closely watched, although lack of a unified opposition will likely see President Magufuli secure a second term.”