Here’s all you need to know about the troubles the four sub-Sahara biggest economy is currently facing in the world’s market.
The countries in Africa ranked in the world as the biggest economy, including South Africa, Nigeria, Angola and Kenya, are in deep trouble and according to CNN, cheap oil, political uncertainty and weak banks are all to blame.
Africa’s Top 4 Economy In Trouble
Low oil price has greatly plunged Africa’s biggest economy into chaos as Nigeria relies on oil for 70% of government revenue and accounts for 90% of export revenue. This has obviously left little space for Nigeria to adjust.
The country is expected to clock in growth of 2.3%, the lowest rate in 15 years, according to the IMF. It is facing a shortfall of $11 billion in its 2016 budget.
Discussions between Nigeria and the World Bank are continuing on a possible loan or credit facility that would be tied to policy reforms, which has drawn down naira reserves and implemented capital controls, making access to dollars very difficult. In an economy that relies on imports, the controls have made life difficult for companies and two South African businesses have already pulled out.
Index compiler MSCI is considering removing Nigeria from its frontier market index because the restrictions have made it harder for investors to repatriate money. To make matters worse, the country is facing a fuel crisis. Despite being Africa’s largest oil producer, it has never had enough refining capacity, and the scarcity of dollars is making it harder for importers to bring gas into the country.
The war against Al-Qaeda linked terror group Boko Haram, which the government has vowed to eradicate, is placing further strain on the country’s finances.
At a growth of just 0.6% estimated for Africa’s most advance economy, South Africa is currently one of the slowest growing countries in one of the world’s fastest growing territories.
The country’s currency, Rand, plummeted 30% last year, and not just because of an emerging market sell-off. Political turmoil has also had a big impact as President Jacob Zuma survived impeachment earlier this month, despite the highest court in the land finding him guilty of breaching the constitution over how public money was spent renovating his home.
Chaos in government isn’t helping either. Zuma stunned investors by replacing Finance Minister Pravin Gordhan with a little known politician, only to backtrack and ask Gordhan to return to the post to stop the rand’s freefall.
Even though the rand has steadied this year, rallying by about 7% as a result of being helped by a broader rally in markets driven by rising commodity prices, the country is still on a brink of a ratings downgrade that would plunge its sovereign debt into junk status.
What was once one of Africa’s fastest growing economies is now on its knees and asking for help from the IMF. Angola is Africa’s second largest oil producer and relies on oil for 95% of government revenue.
After debuting on the international debt market last year, the country appears unable to meet its budget and debt obligations. It has requested assistance from the IMF in the form of monetary support.
Angola is also bound to money-for-oil deals with China. It has used oil as collateral for loans from China, and that is further squeezing state finances.
The country is set to grow by 3.5% this year, down from 6.8% in 2013, according to the IMF.
According to CNN, Kenya is have troubles in its banking sector. For a country with more resilient and diversified economy, three banks in the country are being wound down by the central bank. Two of the banks failed last year, while the third is forced into the arms of lenders as last resort. A fourth bank is under investigation and analysts believe consolidation in the industry is inevitable.
The East African nation has 43 banks, most of which have overstated profits and are buckling under the weight of non-performing loans and a big fall in deposits. A dozen banks may end up under central bank control as it tries to clean up the sector.
All this is weighing on Kenya’s growth prospects: IMF has just cut its forecast to 6% for 2016, down from 6.8% previously.