East Africa is projected to be the hotbed of economic growth and recovery in sub-Saharan Africa, with the region expected to report an average growth of 5.1 percent in 2021 against a continental average of 3.2 percent.
Allianz SE Chief Economist Ludovic Subran forecast economic growth in Kenya, Tanzania, Uganda and Rwanda to significantly rebound after a tough year due to the devastating effects of Covid-19.
Uganda is projected to post negative growth in 2020 and Rwanda is projected to post the highest post-Covid recovery, with gross domestic product (GDP) growth projected at 4.8 percent and seven percent respectively.
A “confidence shock” triggered by the vaccination campaign, boosting consumption, investment and trade will be the key drivers for the rebound, with growth in sub-Saharan Africa set to rebound by 3.2 percent in 2021 after the continent went through the worst recession in its recent history recording a -4.2 percent GDP decline.
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“In 2021, the recovery will be essentially driven by stronger domestic and world demand and trade, higher commodity prices, and resuming tourism activity,” said Subran in a recent virtual presentation titled Vaccine economics, trade, China and growth in Africa.
The projected economic recovery comes as Allianz prepares to expand its presence in the East African insurance market by building on a solid foundation in Kenya, following the acquisition of most of the shares in Jubilee Insurance, which operates in Burundi, Kenya, Maurutius, Tanzania, and Uganda.
Jubilee Holdings shareholders had approved the acquisition that will see Allianz acquire controlling stakes of between 51 and 66 percent in Jubilee’s general insurance units in Kenya, Tanzania, Uganda, and its short-term general and medical insurance business in Burundi and Mauritius at a cost of $100 million.
Subran said, although Covid-19 infection rates remained relatively low in sub-Saharan Africa compared with the other parts of the world, the region’s economies were severely hit by the crisis due to weak internal and external demand and commodity price shocks.
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In 2021, Africa will benefit from supportive fiscal stimuli and good financing conditions globally with interest rates expected to remain low. The continent will also benefit from the resumption of global trade, with China being central due to its strong trade ties with the continent.
Despite the heightened hopefulness of recovery, sub-Saharan Africa will have to grapple with the challenge of less fiscal space instigated by the unprecedented accumulation of debt and declining government revenues.
According to Allianz SE’s Chief Economist, “the Covid-19 crisis has worsened fiscal imbalances in Africa. The increase in public spending and decreasing government revenues from tourism, natural resources and taxes have pushed up public debt to hardly sustainable levels.”
He added that the main economic challenge for the continent will be financing growth sustainably, a problem that will be compounded by China’s disengagement from the continent due to slow growth.
The impact of slow growth in China could result in countries like Angola, Brazil, Ecuador, Ethiopia, Ghana, Kenya, and South Africa struggling to find alternative funding, investment and trade.