Economic insightsStrategySub-Saharan Africa

21 June 2022

SSA Macro Initiation: Not in the same boat

In brief

  • Just when we thought the global economy was getting back on its feet from the pandemic knockout, new risks have emerged – constituting flies in the ointment.
  • The biggest curveball thrown to emerging and developed markets so far this year has been the European conflict that is fanning uncontrollably-high consumer prices.
  • Markets finally got the long-anticipated interest rate hike from the United States (US) Federal Reserve Bank (Fed). This, along with a strong dollar, has resulted in a declining global risk appetite – to the detriment of emerging market economies.
  • However, Sub-Saharan Africa’s (SSA) emerging economies may be in the same storm, but not in the same boat.
  • How the SSA’s emerging economies have been impacted and how they have been responding has depended largely on their domestic economic circumstances and levels of resilience.
  • For some emerging SSA economies, soaring commodity and energy prices have been a boon (e.g. South Africa), while for others, they are a new headwind (e.g. Ghana). For another group of economies, the gains from the commodity price shock are being eroded by inefficient subsidies (e.g. Nigeria) – making a nonsense of the commodity windfall.
  • The deterioration of the SSA’s economic fundamentals in 2022 is inevitable, and the region’s markets are already pricing in the associated sovereign risks.
  • But bear markets quite often price assets rather irrationally – pushing prices beyond where fundamentals warrant; and widespread market pessimism serves up bargain purchases at dirt cheap prices.