Most midtier markets in sub-Saharan Africa are expected to see a slight uptick in their growth rates this year, economic and financial research company BMI sub-Saharan Africa country risk senior analyst Orson Gard said in a webinar on March 18.

The most significant development for these markets over the recent past was the decision by the US to cut back spending on foreign aid, he said.

Sub-Saharan Africa has been a major recipient of US foreign assistance disbursements for many years and the depth of the recent cuts is expected to be highly damaging in markets where this aid is a major component of foreign earnings, such as in Somalia, the Central African Republic, Liberia, Mozambique, Malawi and Lesotho.

This could pose a threat to growth and could intensify fiscal pressures and stifle economic activity, especially where aid flows were a large share of domestic consumption. The cuts in aid could impact stability and economic growth in the region in the near to medium term, he noted.

Further, while there are risks of the US imposing tariffs on imports, sub-Saharan Africa is less exposed because most of the sub-Saharan Africa markets do not trade heavily with the US, with the majority exporting less than 5% of their goods to the US.

While some countries, such as Lesotho and Liberia, that benefitted under US duty-free access framework the African Growth and Opportunity Act are likely to feel the squeeze, the majority on the continent exported goods that had inelastic demand, meaning that US demand was unlikely to change drastically even if prices increased through higher inputs caused by higher tariffs, said Gard.

BOTSWANA

Botswana was exiting a difficult year in 2024, during which it experienced a significant economic contraction in real terms, estimated at 4.6%. The downturn was led by the mining industry, which was the economy's growth engine, slowing down owing to headwinds in the global diamond market, said BMI sub-Saharan Africa country risk analyst Andreu Paddack.

Demand for natural diamonds has slowed and laboratory-created synthetic diamonds, which are cheaper and chemically identical, are keeping prices for natural diamonds low.

Demand for natural diamonds was not expected to return to pre-pandemic levels any time soon and might never recover to this level again, leaving the capital-intensive mining industry and its economy at a big disadvantage, he said.

However, every non-mining sector of the Botswana economy grew between the second and third quarters of 2024, showing the robust performance of the non-mining economy in Botswana.

These figures also showed how much work remained to diversify the economy because the contraction in the mining sector caused the contraction in the whole economy, he pointed out.

The BMI research team expected Botswana to make a modest recovery this year, with real GDP growth of 3.8% expected, said Paddack.

“Botswana also saw a historic election in 2024 during which the Botswana Democratic Party, which has ruled since its independence in 1966, lose to the Umbrella for Democratic Change party.

“However, the new administration will have no honeymoon period because it inherited a broken economy. Economic diversification is on the agenda in Botswana and is now a top priority for the new administration, given the economic crisis in 2024,” he said.

This will not be easy, given falling mining revenues and a sharp widening in the deficit to 6.7% in the 2024/25 fiscal year, from 2.8% in the prior year.

The country has passed an austerity budget that saw sharp cuts in recurrent expenditure to narrow the deficit, but it should also aim to look to deliver sufficiently in terms of capital expenditure to diversify the economy away from mining.

Paired with unemployment that reached 27% in 2024, mainly concentrated among the youth, the government of Botswana would need to navigate a difficult landscape this year, he said.

NAMIBIA

In its outlook for Namibia, the BMI sub-Saharan Africa team expected the country's real GDP to grow by 4.1% this year owing to the significant investments in its nascent oil sector. The country had significant estimated reserves that were attracting massive investor interest, said Paddack.

“It is important to manage expectations, particularly in the exploration stage. For example, [oil and gas major] Shell wrote down about $400-billion after it determined that its block was non-viable.

“However, the high global oil price environment in which the price is expected to remain above $75/bl over the coming years will keep the incentives for exploration high,” he said.

Further, the government also had initiatives underway to diversify the economy beyond oil and mining towards renewable energy, eco-tourism and climate-smart agriculture, which had shown encouraging growth over the past few years, said Paddack.

Additionally, oil exploration was anticipated to benefit the logistics and accommodation sectors owing to increased business activity around the oil sector, he said.

On the political front, Namibia has a low risk profile compared with other countries in sub-Saharan Africa and has a history of policy continuity.

The ruling South West Africa People's Organisation party retained its majority in the 2024 election. But the BMI team expects it to gradually lose support over the long term because the recent electoral victory were the worst results in its history.

While there is strong policy continuity and the government is fostering economic diversification, if living standards do not improve meaningfully it may lead to a change in the ruling party, Paddack said.

Meanwhile, countries in the sub-Saharan Africa region can capitalise on the growing demand particularly for minerals to support the green energy transition.

The Democratic Republic of Congo (DRC) has the lion's share of copper reserves, although Zambia can also benefit from copper demand, while markets such as Zimbabwe, with significant lithium reserves, and the DRC, with cobalt reserves, stand to benefit, he said.