After the great economic downturn of 2016, Africa’s economies are on the up again. The African Development Bank forecasts 4% growth in gross domestic product across the continent for 2019, with improvement expected across all four of its geographic regions.
The setbacks of 2016 prompted regulators to tighten regulations for financial institutions, aimed at strengthening good banks and encouraging consolidation among weaker lenders. The result is a smaller number of bigger banks with stronger credit profiles, according to Moody’s, making the sector fitter and more resilient going forward.
The growth of economies such as Nigeria, Ghana and Kenya has prompted governments to develop domestic capital markets. Last year saw a record $15.8bn-worth of sovereigns, supranationals and agencies (SSA) issuances in sub-Saharan Africa.
Despite such growth, Africa’s capital markets remain at an early stage of development, with little in the way of secondary markets and few incentives for corporate and private credit issuers. And while the continent’s high SSA yields are attractive, international funds are liable to disappear quickly in an economic downturn.
Mozambique and Namibia are just two examples of countries that offer opportunities for growth (thanks to abundant deposits of liquefied natural gas and mineral resources, respectively), but are cruelly exposed to the impact of climate change, in the form of the devastation of Cyclones Idai and Kenneth in the former, and an ongoing severe drought in the latter.
Both countries have looked to tighten regulations for lenders since the downturn, to strengthen the resilience of their banking sectors and their economies as a whole. Such a process is set to be replicated across the continent, in an effort to make this latest phase of Africa’s economic growth more sustainable.
