A pattern has emerged as South Africa joins list of Africa’s biggest economies in recession
The African continent is suffering economic crisis as its biggest economies continue to slip into recession. In the North, Egypt, the largest sub-regional economy slipped into recession in 2016 while in the West, the sub-region’s and continent’s largest economy Nigeria also succumbed to economic crisis. Officially, South Africa on the South, has also slipped into recession.
This worrying trend in the Africa’s biggest economies portends grave implications for the continent at large. These economies serve as trade partners with other smaller African economies, thus also posing a threat to economic stability within the regions.
What though is wrong with the Africa economically? We look at some problems common to these 3 economies that slipped into recession.
1. Import-Export imbalance: A common thread you cannot ignore in the stories of these 3 economies is how much imports they consume while exports decline every passing quarter. In Egypt, consumer inflation increased to 14.8% in 2016 while exports reduced by 40% during the same period. Similarly, South Africa’s consumer frenzy was not matched by increases in exports and manufacturing as the manufacturing sector dipped by 3.7%.
2. Corruption: Another theme that stands out in each of these nations is the fact that their economic crisis follows a period of boom. For Nigeria, it was just after oil prices reached their highest ever rates while Egypt and South Africa enjoyed similar successes in other sectors such as tourism. However, governments in these countries have been accused of extreme corruption during these periods leaving nothing to plan for rainy days. In Nigeria, a new government’s anti-corruption drive has seen several billions looted by former key government officials while South Africa’s opposition party has frequently accused the ruling party of corrupt practices.
3. The foreign reserve problem: All these countries suddenly found themselves with low foreign reserve levels, which ultimately led to a shortage of foreign exchange with which manufacturers could carry out their businesses. While a dip in foreign investment (also caused by poor economic policies) play a key role, what were the Central Banks doing when the reserves starting dipping? This leads to the next point….
4. A weak and indecisive Central Bank: It is during times such as these that the economic prowess of the Central Bank comes to play. Sadly, though, they have conspired to fail. In Egypt, many economic analysts blame the recession on the failure of the central bank to manage foreign currency reserves and offer innovative solutions to the Cairo’s economic crisis. “The Central Bank has been pursuing policies that are making things worse,” an economist, Rashad Abdo said. Both banks in Egypt and Nigeria were busy chasing down foreign exchange parallel market operators instead of facing key economic problems.
5. Fruitless loans: Loans which have done nothing to improve key sectors have only worsened the situation. In Egypt, Cairo reached an initial agreement with the IMF for a $12 billion assistance package over three years, which although raised the country’s foreign debt to $65 billion really is not doing much to help the situation. Nigeria, too, has been borrowing relentlessly and international analysts say it now must spend a quarter of its GDP servicing debt. Unfortunately for South Africa, its credit downgrades may mean less access to such loans.