Fitch Solutions, a unit of Fitch Group expects regional growth in sub-Saharan Africa (SSA) will pick up this year, despite a muted outlook for major markets.

Fitch Solutions SSA Country Risk senior analyst Gianmarco Capati on January 25 said that economic growth would accelerate in SSA despite mixed performances by major markets.

He was speaking during Fitch Solutions’ ‘Sub-Saharan Africa Macroeconomic Update: Key Themes For 2023’ webinar.

While Fitch Solutions assumes a moderate pickup in economic momentum, reflecting accelerating growth in Mainland China and moderating (albeit still high) inflation levels, performance by the region’s major markets will be mixed, with South Africa and Nigeria continuing to underperform.

A moderate slowdown in Southern Africa – from 2.8% in 2022 to 2.2% this year – will weigh on the regional average.

Fitch Solutions expects growth in South Africa, the largest economy in Southern Africa, to continue to trend downwards to 1.6% in 2023, from 2.1% in 2022.

Capati expected a muted short-term growth outlook for South Africa.

Fitch Solutions expects monetary policy tightening to slow in SSA, despite still high inflation levels, and governments to face fiscal policy dilemmas.

Rising interest expenditure would create fiscal policy dilemmas, Capati noted.

Fitch Solutions expects inflation to remain elevated in most SSA markets this year.

While the average yearly inflation rate will ease from 17.7% in 2022 to 14.2% in 2023 – chiefly reflecting moderating global commodity prices following the sharp global price rally in 2022 – it will remain above the 2012 to 2021 average of 10.5%.

Further, Fitch Solutions believes higher debt servicing costs will create fiscal policy dilemmas in many SSA markets this year.

With inflation remaining above historical levels, it expects governments will seek to keep subsidies and social support measures (some of them implemented in 2022) in place.

However, pressurised fiscal accounts on the back of rising interest payments could force some governments to remove or phase out these support arrangements.

Authorities in countries where debt repayments would increase significantly – including Ghana, Nigeria, South Africa, Angola and Kenya – would have to consider raising taxes or cutting noninterest expenditure (such as public wages and development spending) at the risk of slowing economic growth and fuelling anti-government sentiment, it noted.

Fitch Solutions has a mixed outlook for SSA currencies, despite a softening dollar.  

The South African rand is likely to benefit from a softening dollar over the year.

However, Capati said the rand would remain in varying degrees of depreciation; however, this would moderate compared with 2022.

Persistent political uncertainty stemming from President Cyril Ramaphosa’s weakening position will act as a depreciatory factor, and declining metals prices will depress export earnings and ensure the rand continues to weaken, by 4.8% over 2023 as against 11.1% over 2022, he stated.

Capati said that, while there was rising investment in the country’s power sector as it aimed to improve the energy situation, this would take time to translate to improved electricity supply, and power outages were expected to persist this year.

This was already affecting many industries and continued to weigh on business sentiment in the near term, reflected in weaker business confidence, he said.

Meanwhile, Fitch Solutions expects social unrest and political tensions to rise across SSA and, in particular, in West Africa.

Politically, almost half of SSA markets are due to hold presidential, legislative or local elections this year.

Capati pointed out that divisions within South Africa’s ruling African National Congress (ANC) party raised the risk of fiscal slippage ahead of the 2024 vote.

Also, until Ramaphosa is cleared of the “Farm Gate” charges, the possibly of him being charged and stepping down poses risk to government continuity and reforms, Capati noted.

The impact of this issue, and ANC divisions, is expected to further weaken the ANC appeal, and Capati said Fitch Solutions expected the party to struggle to retain its majority voter support.

Therefore, improved fiscal consolidation over the past few years is expected to be temporarily derailed.