Nigeria and South Africa, Africa’s two biggest economies, have been projected to likely emerge from recession in the second quarter of the year but strong growth won’t show up until business confidence is restored, a Reuters’ poll suggested at the weekend.
The poll, which comes ahead official growth data expected Tuesday this week for both countries, specifically predicted that Nigeria can only come clearly out of recession if business confidence is restored through the adoption of a single foreign exchange policy.
According to the poll, Nigeria and South Africa have both benefited from a recovery in commodity prices since early 2016, though not as much as their main trading partners — China, the US and the euro zone.
“Both countries have bounced off the bottom, but the sustainability is in question. Nigeria needs a single FX policy and South Africa needs more policy certainty,” said Aly-Khan Satchu, CEO of Rich Management in Nairobi.
Nigeria, the continent’s most populous country, had been in recession since late 2015, while South Africa confirmed a technical recession in the first quarter of this year..
A Reuters’ poll taken last week showed Nigeria’s economy broke out of a long slump in the second quarter with a median forecast for 1.55 percent year-on-year growth while South Africa quit shrinking with 2.2 percent quarter-on-quarter growth.
“We expect a return to positive year-on-year growth in Nigeria, helped by improved foreign exchange availability and a recovery in oil production,” Razia Khan, head of Africa research at Standard Chartered, is quoted as saying.
Nigeria has suffered from dollar shortages and falling commodity prices that have affected Africa’s major crude exporters. The crisis has been exacerbated by limits on what citizens can import as authorities try to stop the naira sliding.
However, Gaimin Nonyane, head of economic research at Ecobank, said she expects the positive growth trajectory to be maintained for the foreseeable future — as long as forex market liberalization continues and assuming oil prices remain at current levels with no further disruptions to oil production.
The Nigerian central bank has occasionally taken steps to inject dollars into the market, squeezing the huge difference between black market and official prices, but has not allowed the naira to float.
Still, Nigerian assets, which were largely shunned by foreign investors over the past three years have attracted significant amounts of capital after the central bank took further steps in April to liberalize the exchange rate for investors through the creation of the investors and exporters window.
In South Africa, the normally reliable trade, catering and accommodation sector was the worst performer in the first quarter, contracting 5.9 percent, while the key manufacturing sector shrank 3.7 percent.
“Recovery in manufacturing in the second quarter should help drive a quarter-on-quarter acceleration, but growth is expected to remain weak overall,” said Khan, adding that agriculture should provide some lift to growth but other sectors are likely to only see negligible growth as confidence lags.