SUNDAY: Global growth continues to disappoint and is now estimated as a slower than expected 2.4 percent in 2015. What is your outlook for Sub-Saharan Africa?

KAMBOU: Our outlook for Sub-Saharan African is for a moderate pickup in growth in 2016 to about 4.2 percent. This reflects our view that growth will continue to remain weak in the region’s largest economies which include Nigeria, South Africa and Angola. Nigeria and Angola are the region’s two largest oil exporters and they have been hit quite hard by the decline in oil prices. On the other hand, many of the region’s low-income economies such as Rwanda, Tanzania, Ethiopia should continue to see a turnover of growth, also activity is expected to slow down as a result of low commodity prices.

SUNDAY: What impact would lower oil prices have on oil exporters in the region?

KAMBOU: The decline in oil prices are as a result of the fiscal positions of the oil exporting countries. In Nigeria, revenue has declined very sharply, similarly in Angola, the government budget is facing severe pressure. In 2015, these countries reduced spending quite sharply which led to a significant slowdown in the economy, so we see this pressure continuing in 2016, if the prices continue to fall or decline. In Angola, the Government had to devalue the currency three times from an average of 102 kwanza to the dollar to an average of about 155 kwanza and this has put pressure on inflation.

The rise in inflation in turn, has prompted the central bank to hike interest rates which is going to put pressure on activities. In Nigeria, response to the decline in the price of oil has also put pressure on the reserves, the government has kept exchange rates fixed which means that the exchange rate has depreciated sharply in the foreign exchange market. Consumers and manufacturers who don’t have access to the interbank Foreign exchange market who then have to borrow in the parallel market are facing a much more depreciating currency and this is contributing to the slowdown in the economy.

In other small exporters, we also see that pressure playing out, straining the fiscal budget, putting pressure down on foreign exchange and the exchange rate which has depreciated rapidly and this is bound to continue in 2016. Perhaps, the broader picture that we should be looking at is that, activity both at the regional and global level is being impacted by three major economic transitions; the first being the slowdown and the restructuring that is taking place in China away from raw material sector towards constructing services. Secondly, you have the prospect of commodity prices remaining lower for a longer period and thirdly, the increasing diversions in the monetary policies in advanced economies. On one hand, there is the United States that is going through a gradual tightening of policy, whereas in Europe and Japan, the Central Bank continues to have an ease of monetary policy and these transitions are creating spillovers through trade, exchange rates, commodity prices and an increase in greater market stability.

SUNDAY: What is your outlook for capital flows in the region despite all you have said so far?

KAMBOU: Firstly, for the Countries that are heavily dependent on oil export and investment in the extractive industry, we should see a slowdown in the capital inflow of those economies. In addition, Countries like South Africa that depend heavily on portfolio inflows to the extent that foreign investors have concerns about the credibility of policies might put pressure on the currency and outflows of capital in the economy and we see that happening already. Overall, the outlook is for capital inflow to diminish in 2016 unless those economies seriously implement structural reforms that will enhance sentiments or confidence regarding the economic policy making in those countries.

SUNDAY: What is your outlook for Sub- Saharan African Currencies? In Nigeria at the moment, the naira continues to take a dip against the dollar, what’s your outlook for other currencies in the region?

KAMBOU: In Nigeria for example, what we have seen so far is the Central Bank choosing to fix the naira to the dollar and trying to support it in parts by growing on reserves, of course, this is putting pressure on the reserves. The question is what other policies can be sustained? The 2016 budget is envisaging an increase in government spending, if that budget indeed is what the government intends to implement and if their spending plans as proposed in the budget are in the face of declining revenues, then the government will have to find ways to finance that. Partly, they refinance it by borrowing to the extent that there is concern that the government is not properly addressing its fiscal vulnerabilities; that is bound to put further pressure on the currency.

The government has to decide at some point whether to continue this policy or whether to allow for some depreciation to take place. Similarly, in the South African Context, recently, we have seen the central bank hike interest rates and this has helped to stabilize the rates but for the government to be able to sustain that, it will have to adapt a fairly credible budget going forward and if it is able to do that and combine that with a structure reform, that could reduce pressure on the rand. In the case of Angola, the government devalued the kwanza and their ability to control spending in the face of lower oil prices would determine whether the currency will continue to depreciate or not; so I feel the outlook is for these economies to continue to face headwinds that would put further pressure on the currency.

SUNDAY: How would you access the likely impact of key risks in the region?

KAMBOU: Firstly, we can look at the domestic risk; we have a range of political risks that could affect growth prospects in the region. Many countries should be having presidential elections this month and in the coming months and how those elections are managed can have implications on political stability going forward, particularly in Countries where governments or Presidents are seen to be changing the constitution to allow them run for an extended term in the country and that could lead to instability as we have seen in Burundi and to some extent in Burkina Faso.

Adding to that, you have some real security threat issues that have to be dealt with in Nigeria- Boko Haram, which not only affects Nigeria but other neighboring Countries including Cameroon and Benin and then the threat affecting the Sahel and Burkina Faso like Mali, and to some extent, Niger.

In East Africa, Kenya is also battling terrorists and if this were to escalate, that could put pressure on activity and slow growth in those Countries. Beyond the political and security threat, many countries are facing fiscal vulnerabilities in the sense that they are seeing the fiscal budget rise, the reserves fall and some have entered the period of low commodity prices, if these conditions were to deteriorate, that may lead to a further pressure on the exchange rate, an increase in debt and weaker growth prospect. One issue that we haven’t really discussed is the electricity problem, in many Countries in the region, including the commodity exporters, the impact of the decline in oil prices would be really exacerbated by the problem of electricity supply.

Electricity shortages continue to affect manufacturing activities as seen in South Africa in March 2015, electricity supply was a problem and impacted on the activities in the County so if that were to continue or worsen, clearly, that would hold back activities in many countries in the region and thereby also weaken prospects and finally, the external risks mainly in the price of the commodities; a further decline in commodity crises would put further pressure on the budget and fiscal account of many of those Countries and worsen their growth prospects.