Sub-Saharan Africa’s economy had been at a constant improvement up to the end of 2020. This has a great impact on the activity in currency markets as many multinational corporates have their subsidiaries in the region and are affected by the economic outlook of the region.
According to IMF, the region is at risk of falling behind to become the slowest growing region in the world in 2021. Other regional markets are rebounding from the adverse effects of Covid-19 but sub-Saharan Africa is expected to be slow on it.
Main issues slowing economic growth in sub-Saharan Africa
According to IMF and other world financial bodies such as the World Bank, the slow growth of the economies in the region have been greatly affected by the following factors:
On top of the list of problems African countries are facing today is increased debt distress. Over 40% of countries in the sub-Saharan Africa region are either in major debt crisis or at risk of falling into huge debt crises.
This fact doesn’t help in cushioning the region from the harsh global economic times, thus, it is expected that the region will perform dismally on the activity in currency markets.
Of course, Covid-19 hit the global economy badly. In 2020, most economies were on the brink of recession. Luckily, there has been a slow but steady recovery by most economies in 2021. However, the sub-Saharan Africa region is yet to recover from the adverse effects of Covid-19.
The IMF has identified some issues that are believed to be the greatest hindrance to post-Covid-19 recovery in the region. They include:
- Lack of access to vaccines, which is denying the economies to attain full reopening.
- A gap between public and private health, leading to health challenges in the region.
- Lack of sufficient funds to be injected into the economies to speed up recovery. However, some countries in the region have rolled out stimulus packages to help improve the economy, though the overall economic outlook of the country is not appealing.
The economic look of the region relies a lot on the leaders in the continent. Currently, the leadership is doing less to address economic issues, which makes the IMF predict an economic slowdown in 2021.
What is the impact on financial markets?
Large multinational corporates with subsidiaries in Africa might have their stock prices reduce. The stock prices are important in controlling activity in currency markets, thus, the forex will also be affected.
Closure of companies
As it is, some corporates have already started closing their subsidiaries in sub-Saharan Africa. An example is Barclays that has closed its African branches and sold off to ABSA. If this trend is anything to go by, then the financial markets in Africa will be hit hard in the coming few years.