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IMF predicts Kenya’s economy to overtake Angola

Published

2 weeks ago

April 26, 2024

The International Monetary Fund (IMF) says that this year, Kenya will pass Angola to become the fourth biggest economy in sub-Saharan Africa. South Africa, Nigeria, and Ethiopia will then follow it.

Kenya is expected to stay in that spot until the end of 2029 as its GDP grew from $113.7 billion (Ksh13.37 trillion) in 2022 to $108.9 billion (Ksh15.14 trillion) last year, based on the current exchange rate. Ethiopia’s lead over Kenya has grown, and in two years it will pass Nigeria to become the second-largest economy in the area.

In 2020, Ethiopia’s economy was smaller than Kenya’s but it has continued upward and is expected to have reached $159.74 billion (Sh21.165 trillion) by 2023, making the gap between the two countries even bigger. Also, Ethiopia’s economy is likely to stay in second place for three years, until 2029.

Some people think that Ethiopia’s gross domestic product (GDP), which is the value of all the goods and services made in the country, is higher than it is. The country just got out of a civil war that lasted two years and destroyed its economy. It is one of the African countries that has not paid one of its debts.

According to the African Development Bank, East Africa will continue to grow fastest in Africa. In 2024 and 2025, growth is expected to reach 5.1% and 5.7%, respectively. The expected strong economic performance of countries in the region is reflected in the growth acceleration of 1.6% points from 3.5% in 2023 to 7% in 2024. Seven economies are expected to grow by 5% or more in 2024: Rwanda (7.2%), Ethiopia (6.7%), Djibouti (6.2%), Tanzania (6.1%), Uganda (6%), Burundi (5.8%), and Kenya (5.4%).

Charlie Robertson, who is in charge of macro strategy at investment management firm FIM Partners UK Ltd., called the exchange rate between the pound and the erg a “fantasy exchange rate.”

“Ethiopia is maintaining a hugely overvalued exchange rate which is not supported by reality,” said Robertson in an email response.

The stated exchange rate for the Ethiopian Birr is 57, but the FIM Partners FX model says that it should be about 97% of the dollar. The IMF says that Ethiopia’s economy grew by 7.2% last year, from a base of $118.97 billion to $193.0 billion. This was the fastest GDP growth in sub-Saharan Africa.

Kenya’s economy, on the other hand, grew more slowly, by only 5.5% in 2023. This was because the country’s economy came out of a year marked by drought and tight global financial markets because of the war in Ukraine. This month, Kenya is likely to share its official GDP numbers for 2023.

“But at a realistic exchange rate, [Ethiopia’s] GDP was probably $90 billion. Kenya’s GDP by comparison was $109 billion in 2023. So, if you use the official figure, you’d say Ethiopia’s economy was about 50% bigger than Kenya – but in reality, Kenya’s economy is bigger.”

Related Topics:Angola Featured IMF Kenya

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Nigeria: Manufacturers’ market access key to success of AfCFTA agreement

Published

12 hours ago

May 6, 2024

Ifeoluwa Dada

According to the Manufacturers Association of Nigeria (MAN), the ability of local manufacturers to compete on the continent is crucial for obtaining market access under the terms of the African Continental Free Trade Area (AfCFTA) agreement.

The Guided Trade Initiative (GTI) under the AfCFTA has begun with a few countries’ participation, except Nigeria, which is about to sign off for the guided trade, even though the trade deal has not yet fully taken off.

To match businesses and products for import and export between interested state parties who have complied with the minimal requirements for trade under the AfCFTA, GTI was introduced in September 2022.

Nigerian manufacturers have frequently expressed their regret over the different issues limiting the industry’s competitiveness and warned that if these issues are not resolved, their nation will suffer due to the continental trade agreement.

Mr. Segun Ajayi-Kadir, Director-General of MAN, stated that the manufacturing sector lacks the infrastructure and microeconomic support necessary for growth and competitiveness.

He stated: “The manufacturing sector is already beset with multidimensional challenges.

“We now have AfCFTA that allows us to compete around the African continent. But if we are not competitive, and we cannot grow the sector within the country, your guess is as good as mine as to the millage in terms of market access that we should be able to enjoy.

“So, I believe the manufacturing sector has good growth prospects, but it needs supportive policies that would aid its growth in all ramifications.

“What local manufacturers are yearning for are supportive policies that will aid the growth and competitive capacity of the country’s industrial sector in all ramifications,” he added.

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FX bank swaps account for 30% of Nigeria’s external reserves— Fitch

Published

2 days ago

May 5, 2024

Ifeoluwa Dada

Global credit ratings firm, Fitch, has claimed that approximately 30% of Nigeria’s external reserves is comprised of foreign exchange (FX) bank swaps.

This disclosure underscores ongoing uncertainties regarding the country’s net FX reserves, exacerbated by opaque entries amounting to nearly $32 billion in FX forwards, over-the-counter futures, and currency swaps listed as off-balance sheet commitments in the Central Bank of Nigeria’s (CBN) consolidated financial statement for 2022.

The Central Bank of Nigeria’s (CBN) consolidated financial statement for 2022 lists approximately $32 billion in FX forwards, over-the-counter futures, and currency swaps as off-balance sheet commitments.

These opaque entries, combined with this disclosure, highlight the continued uncertainty surrounding the nation’s net foreign exchange reserves.

“Uncertainty continues over the net FX reserve position, with a particular lack of clarity on near USD32 billion of ‘FX forwards, OTC futures, and currency swaps’ recorded as an off-balance sheet “commitment” in CBN’s last consolidated financial statement for 2022.

“Fitch estimates around 30% of Nigeria’s reserves are made up of FX bank swaps, although we expect most of these to continue to be rolled over.”

Uncertainty in Nigeria’s FX Reserves.

In its latest credit outlook for the country, Fitch noted that the lack of clarity over the precise size and composition of Nigeria’s FX reserves remains a significant constraint on the nation’s sovereign credit profile.

Fitch believes that the majority of FX bank swaps will be rolled over in spite of these worries, which might offer some brief stability in the reserves management. Additional report insights point to a recent increase in non-resident inflows into Nigeria, which are being driven by more stringent monetary policy measures and a greater formalization of FX activities.

The report also showed that by the end of April, Nigeria’s gross foreign exchange reserves had dropped from $34.4 billion in mid-March to $32.2 billion. Fitch stated that in order to support the currency, FX sales to Bureau de Change operators and debt repayments account for a portion of the decline.

By the end of 2024, the FX reserves are expected to fall to just 4.2 months’ worth of current external payments, which is in line with the “B” median.

“Gross FX reserves fell to USD32.2 billion at end-April, from a peak of USD34.4 billion in mid-March, partly reflecting repayment of existing debt obligations, and FX sales to BDCs to support the currency.

“Fitch projects a broadly flat current account surplus, averaging 0.5% of GDP in 2024-2025, supported by a modest rise in oil production and remittances.

“We forecast FX reserves to fall to 4.2 months of current external payments at end-2024 (‘B’ median 4.2), from 4.4 months at end-2023.”