A handful of African countries will begin to emerge from the pandemic this year. Based on the latest economic outlook data and PANGEA-RISK’s updated quantitative country risk ratings, we assess the trajectory of the pandemic in Africa, the road ahead for the vaccination rollout, persistent sovereign debt concerns, and the most likely winners and losers as the continent tentatively steers toward recovery.

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On 15 April, the International Monetary Fund (IMF) said sub-Saharan Africa is set to record the slowest economic growth of any world region this year as the continent struggles to bounce back from a pandemic-triggered downturn. Following a contraction of 1.9 percent last year, sub-Saharan Africa’s regional economy will grow by 3.4 percent in 2021, according to the regional outlook. That’s well below a global forecast of 5.5 percent. Per capita output is not expected to return to 2019 levels until 2022.

Moreover, Africa’s rebound will be uneven. South Africa, the region’s most developed economy, will grow by 3.1 percent following a 7.0 percent contraction last year. Oil producers Angola and Nigeria, meanwhile, will grow by 0.4 percent and 2.5 percent respectively. In East Africa, Kenya is predicted to record GDP growth of 7.6 percent, after a contraction of 0.1 percent last year, while Ethiopia’s growth will slow from 6.1 percent in 2020 to 2.0 percent this year.

Last year’s global downturn meanwhile worsened debt burdens in many African countries. Seventeen countries were in debt distress or at high risk of debt distress, according to the IMF. The IMF estimated additional external funding needs for the region for the 2021-2025 period at USD 425 billion. PANGEA-RISK assesses some of the key finding of the IMF report and delves a little deeper into Africa’s prospects to emerge from the pandemic.

The state of the pandemic in Africa

In terms of the current state of the pandemic, Africa’s 54 countries are cumulatively approaching four and a half million infections. This equates to approximately the same number of COVID-19 cases as the United Kingdom, although Africa’s death rate has been half that of the UK and many other western countries. However, the trajectory of the virus in Africa looks quite different than in the UK. The continent has experienced two waves of infections – the first wave in July and August last year, and the second wave at the start of this year. Rather than sloping downward and receding, the daily data shows that the virus is again in some form of holding pattern before it finds a new opportunity to trigger the next wave.

While daily new case numbers have been steadily dropping across the continent, the World Health Organisation reports an upward trend in 15 countries, including Cameroon, Ethiopia, Kenya, Rwanda, Tunisia, and Guinea. The main concern right now is that Africa’s death rate is also rising, dispelling initial optimism over the continent’s statistically lower number of deaths. The average 2.7 percent case fatality in Africa is now higher than the global average of 2.2 percent.

South Africa awaits a third wave this coming winter season, while insurers in the country are anticipating at least two and a half more waves of infections before the virus recedes. Most recorded infections remain in the south and north of the continent, while there are two secondary hubs in the dense population centres in the east around Ethiopia and Kenya, and the west around Nigeria and Ghana. Several African countries are currently in lockdown, such as Mauritius and, partially in five counties in Kenya including Nairobi. Restrictions remain in place in most countries in Africa, although the economic lockdowns of this time last year have not been repeated.

Country risk vulnerability model

PANGEA-RISK rates the most vulnerable countries in Africa through our COVID-19 country risk vulnerability model. This model is fed by data on economic expectations, the country risk outlook, healthcare indicators, and the trajectory of the virus itself. Based on our latest update this month, countries with weak governments such as those in Zimbabwe, Sudan, and Somalia remain most exposed to the impact of the virus in terms of their country risk outlook, as well as markets where an economic recovery has been sluggish, like the Republic of Congo and Equatorial Guinea. On the other hand, Africa’s small, economically diversified, and well-governed states like Benin and Rwanda have built up the strongest resilience to this impact.

Africa’s slow vaccination rollout

The PANGEA-RISK COVID-19 impact country risk vulnerability model does not yet incorporate vaccination data inputs, because Africa’s vaccination rollout lags the rest of the world. While the steady roll-out of mass COVID-19 vaccination campaigns in much of Europe and North America have created ample expectations of an impending return to “normalcy,” the situation remains tenuous in much of Africa. Most African states have received vaccines late, and in limited quantities, compared to their counterparts in the global North, resulting in a stark disparity in vaccination rates between Africa and the rest of the world. Sub-Saharan Africa accounts for 15 percent of the global population, but as of early April, only 0.5 percent of all administered doses globally were in sub-Saharan African countries.

In this context, it is crucial that vaccine access is improved as rapidly and in as many areas as possible. Apart from the public health necessity, whether a sufficient rate of vaccinations can be achieved across the continent will have considerable bearing on Africa’s economic recovery. In particular, the revival of the tourism sector depends on the rapid resumption of international travel, which would be expedited by attaining herd immunity through vaccination (for more on Africa’s vaccination rollout see COVID-19 & AFRICA: VACCINE ROLL-OUT THREATENED BY SUPPLY ISSUES).

However, African vaccination programmes continue to face significant obstacles, including an ongoing shortage of vaccine supplies, and public vaccine hesitancy. Moreover, the greater the degree to which populations are exposed to COVID-19, the more likely that extensive circulation of the virus will give rise to new variants with potential to evade the current batch of vaccines. Vaccine financing initiatives committed by the World Bank, the African Export-Import Bank, and others are likely to offer a substantial boost to COVID-19 vaccination campaigns across Africa. However, progress is likely to continue to be slow and uneven in the coming months. Vaccine hesitancy has also been exacerbated by the widespread proliferation of misinformation.

Another source of uncertainty is the presence of a growing number of COVID-19 mutations, which may also undermine vaccination campaigns. Two of the four “variants of concern” currently in global circulation originated in Africa – namely in South Africa and Tanzania. Uncontrolled spread of these variants will limit Africa’s ability to reopen its travel and tourism sectors, which will be essential to drive economic recovery.

Africa’s economic outlook

In 2020 Africa fell into its first economic recession in 25 years and recorded its worst annual contraction in half a century. It is therefore surprising that the continent is set for a faster than anticipated economic recovery this year. The African Development Bank now anticipates that Africa will see 3.4 percent economic growth in 2021. Record demand for metals and other commodities have boosted the prospects of some hard-struck countries such as Zambia and Ghana. Moreover, the coronavirus has put less pressure on Africa’s public health systems than initially feared. A case in point is Africa’s largest economy, Nigeria, which made a surprise exit from a short two-quarter recession in 2020.

However, such causes for optimism need to be balanced with a fair amount of realism. The main contributor to Africa’s economic recovery this year will be South Africa, its most developed market which suffered a massive seven percent contraction in 2020, the country’s biggest drop in economic output since the Second World War. Unsurprisingly, a sharp recovery in GDP is anticipated for 2021 with figures estimated between 2.5 and 3.5 percent. Elsewhere, like in South Africa, such growth prospects would be determined by governments’ abilities to refocus on their coronavirus response and vaccination rollouts, while also implementing much-needed economic reforms. Most African countries will barely recover last year’s lost output. Both South Africa and Nigeria will need to wait at least until 2022 to return to pre-pandemic levels.

According to the IMF, the pre-crisis divergence between resource intensive and non-resource intensive countries in sub-Saharan Africa will persist. Non-resource dependent countries are forecast to see average per capita incomes rise by 21.6 percent by 2025. Oil exporters, which are some of the more populous countries in the region, will have no gains in per capita income over this period. With the exception of Botswana and Mauritius, which come from a very low base after record contractions in 2020, this year’s fastest growing economies will be in the west and east of Africa, spearheaded by Kenya and Niger. What almost all of these markets have in common are diversified economic bases, sound governance, and strong fiscal and monetary policymaking.

Kenya: Africa’s fastest growing economy

PANGEA-RISK has issued caution about Kenya’s sovereign risk outlook multiple times since 2018. The pandemic has exposed an economy weighed down by rising public debt – standing at USD 64.3 billion, with an additional USD 12 billion in undisbursed loans – years of missed revenue collection targets, and a budget deficit hovering at more than six percent of GDP. Even in the best-case scenario, per capita incomes will fall, and poverty levels will increase between now and the time President Kenyatta leaves office in 2022.

But earlier this year, Kenya’s government made a drastic U-turn on its fiscal policies that were previously also criticised by its creditors and the IMF. Despite initial reluctance, Kenya has now successfully applied to the Debt Service Suspension Initiative, the DSSI, and rescheduled a sizable portion of its Chinese debt, while the government has begun to roll back its tax relief measures implemented last year in April for businesses and consumers. Kenya’s rebound will be supported by recoveries in key sectors such as education, agriculture, manufacturing, construction, and retail and consumption, as well as the government’s recovery plan. Such forecasts are perhaps a little too optimistic given that tourism, which is an important generator of foreign exchange, will remain depressed for much of this year.

However, Kenya’s sovereign risk outlook has significantly improved and growth prospects for 2021 are boosted by the government’s legacy-building industrialisation agenda. Kenya is unlikely to apply to a new common framework to restructure its commercial and Chinese debt, but the country is seeking the reinstatement of a USD 1.5 billion IMF stand-by arrangement that lapsed in 2018.

While the economic and sovereign risk outlook for Kenya has noticeably improved in the past couple of months, there remains a critical spoiler in the form of political uncertainty ahead of an upcoming constitutional referendum later this year and the 2022 general elections. Just as in 2002 and 2008, political risk may determine Kenya’s economic success.

Uganda: Africa’s last oil frontier

The launch of the East African oil pipeline will herald the start of Uganda’s commercial oil development and a large-scale infrastructure build-up. Uganda’s newly re-elected president claims that investments in the oil sector will amount to USD 16 billion and will create thousands of new jobs. However, the actual benefits of the oil sector remain in doubt as operating profits of a new pipeline will be split with Tanzania, while operating oil companies have managed to secure a better deal given the low oil price climate during the pandemic. The pandemic and oil price volatility have done little to offset progress within the nascent East African oil sector. The East Africa oil pipeline will run through neighbouring Tanzania and will make a significant impact on both countries’ economies, but predominantly over the medium-to-long term.

France’s Total signed off this month on the deal, which is expected to see investment of over USD 10 billion into the wider oil sector by stakeholders of the pipeline that also have stakes in various other hydrocarbon projects in Uganda; most of these require the pipeline to be operational. Moreover, the formalisation of Total’s activities in Uganda could see the country attract additional investors into the sector following the largely unsuccessful oil block licensing rounds in 2019 and 2020. That said, the full financial boon for the Ugandan government will only be realised in 2024, when oil production is scheduled to commence.

By 2025, the oil sector is set to accelerate GDP growth to nearly ten percent per year. In the meantime, the country will continue to feel the impact of the pandemic. The weakening economic conditions emanating from the pandemic have put significant pressures on revenue collection, expenditure, foreign reserves, and the exchange rate, creating urgent large external and fiscal financing needs.

Uneven economic recovery

Africa’s economic recovery will be uneven this year, just like its inequitable vaccine rollout. Some countries like Seychelles will continue to suffer terribly from international travel restrictions, even though the island nation leads in Africa’s vaccine rollout. Others like Angola and Republic of Congo will see little benefit from higher oil prices due to unaffordable debt and uncompetitive local energy sectors. Insecurity marks places like Chad where a rebel offensive is ongoing.

But the real losers this year are Ethiopia and Zambia. And this is mostly due to political risk. Ethiopia was Africa’s (and the world’s) fastest growing economy for years, but the country’s outlook is challenged by war, insurgency, and political uncertainty. Zambia should be boosted by high copper prices, but the country will remain in default for most of this year and is unlikely to receive a financial bailout until after its elections this year.

INSIGHT

In April 2020, PANGEA-RISK downgraded the country risk outlook for all African countries. Since then, we have updated the one-year country risk outlook on a quarterly basis. The latest update, which was carried out at the start of April this year, shows a real improvement in the country risk ratings, based on our standard assessment of rating by default highest risk score. We now rate more countries – specifically 21 percent of Africa’s 54 countries – at the moderate risk level, including Botswana, Benin, Togo, and Ghana. And we have even rated Rwanda at the low risk level for the first time in over a year.

But many of Africa’s worst economic performers remain hamstrung by political, security, and sovereign debt risk, such as Sudan, Zambia, Zimbabwe, and Mali. More than half of Africa’s countries continue to be rated at the Severe and High-risk rating categories (red and orange on this map), including former champions of investment Ethiopia and Mozambique. PANGEA-RISK monitors security risks on a monthly basis, based around elections, ongoing insurgencies, and civil unrest trends. For example, we provided two detailed warnings ahead of the 12-day ‘’Battle of Palma’’ in northern Mozambique (see SPECIAL REPORT: IGNORING THE WARNINGS OF ROBUST INTELLIGENCE IN MOZAMBIQUE).

Beyond security and political risks, we also rate Africa’s increasingly concerning sovereign debt outlook. Seven African economies now have public debt that is larger than the size of their economy, while Africa’s debt burden is expected to be 10 to 15 percent higher after the pandemic. Even another round of IMF emergency financing and G20 debt relief may not avoid further defaults. After accurately forecasting debt defaults in Mozambique and Zambia over the past few years, PANGEA-RISK has now raised particular concern over Angola and Republic of Congo, whose oil-dependent economies may not be able to withstand the economic impact of the pandemic.

In order to drive a more sustained and broad-based economic recovery on the continent, an additional USD 154 billion in financing is required in the immediate term. The IMF projects triple that amount is needed in the three-year outlook. As long as the Group of 20 wealthy countries cannot agree on issuing more Special Drawing Rights at the Fund, the prospect of such financial support being paid out is highly improbable. Another plan proposes that rich countries should pay some of their new SDR allocation into COVAX, to speed up vaccine distribution to the poorest countries. The G-20 has also agreed to extend its Debt Service Suspension Initiative (DSSI) until the end of 2021, although this will be final extension. If all eligible countries participate, this could create almost USD 10.5 billion in savings. However, the DSSI is unlikely to reach full capacity as some African countries prefer to avoid the scheme that mandates how savings from debt service relief should be spent.

Also, the common framework for debt relief is still being shunned by most debt distressed countries, with the notable exceptions of Ethiopia and Chad. Countries that have issued Eurobonds are reluctant to apply to the framework, fearing that doing so will impact their sovereign ratings. Instead, distressed emerging markets will seek to issue more bonds on international debt markets to fund their budgets and repay existing loans. Ghana, Kenya, Ivory Coast, and others will issue more Eurobonds in coming months, despite growing concerns over repayment affordability.

Africa still has a long way to go before it can begin to emerge from the pandemic. Some factors such as inequitable vaccine distribution and debt relief offerings are not within Africa’s control and will extend Africa’s vulnerability to the pandemic well into next year. However, Africa can and should be making stronger progress on implementing economic reforms, assuring political stability, and mitigating security risks to seek new foreign direct investment (see SPECIAL REPORT: AFRICA’S COMMON MARKETS COMPETE FOR TRADE AND INVESTMENT).

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