Sub-Saharan Africa: Key themes in 2024

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We set out our key themes for sub-Saharan Africa in 2024.

1. Defaults and complicated debt restructuring remain likely.

Several sub-Saharan African countries are likely to remain at high risk of debt distress in 2024In Kenya, Malawi, Mozambique and Nigeria, debt stress is severe and will remain so during 2024 for both external and domestic liabilities. Chad, Zambia, Ghana, and Ethiopia have already sought debt restructuring under the G-20 common framework. Debt negotiations under the G20 Common Framework will remain lengthy and difficult in 2024. Few sub-investment grade sub-Saharan Africa issues have been completed in 2022-2023, with Côte D'Ivoire currently preparing to reopen sub-Saharan African supply after months without any issuance.

Ongoing external liquidity pressures will increase the risk of contract revisions for domestic state projects, increased tax demands and more-frequent inspections, heighten potential shortages of imported materials and essential imports, and of economically driven popular protests.

2. Divergent regional inflation dynamics will generate an uneven pattern of interest rate cuts.

Interest rates in sub-Saharan Africa are likely to enter a policy easing phase during 2024. Divergent inflation dynamics within the region indicate that rate cuts will not happen on a coordinated basis or timeline. We anticipate the first interest rate cuts in sub-Saharan Africa for the current cycle will be made during the first half of 2024, potentially in Mozambique and South Africa. Angola and Kenya might tighten monetary policy further. The Central and West African regional central banks of the CFA franc zone are likely to align monetary policy with the European Central Bank's policy of rate stability until potential easing, which we currently forecast for June 2024. Central banks in other sub-Saharan African regions are forecast to maintain stable policy rates.

Depreciation of sub-Saharan African currencies against the US dollar is projected to continue into the first half of 2024, although its pace should slow compared with the performance in 2023. Lower inflation and eventually softer interest rates will support overall economic activity in sub-Saharan Africa. We forecast the region's real GDP growth to accelerate to 4% in 2024, from an estimated 3.1% in 2023. Structural changes such as improved electricity supply in South Africa, exchange rate and fuel subsidy reforms in Nigeria, and the startup of large-scale projects such as liquefied natural gas production in Senegal all represent positive factors for regional economic activity in 2024.

3. Security and political instability in the Sahel region are likely to deteriorate in 2024.

The effect of ongoing sanctions imposed on interim governments in the region following military coups and associated reduction in economic activity will combine to have a strongly negative effect on state revenue. There is also a high risk that deteriorating security, and widening impacts from terrorism affecting new areas, will prompt the exit of mining companies, removing one of the principal remaining sources of substantial external revenue for several countries that are affected.

Outside the Sahel, countries most at risk of a coup in 2024 are those with very long-serving leaders, unclear successions, and politicized and/or divided militaries.

4. Geopolitical rivalries will facilitate growing local beneficiation and value addition in the resource sectors.

Sub-Saharan African governments have made progress in seeking greater control over their countries' natural resources and promoting local processing. Countries producing critical minerals for the energy transition, hydrocarbons, or other raw materials critical to supply chains will continue to push for greater domestic retention of the value chain. In parallel, efforts to reduce economic reliance on mainland China and Russia within US and EU supply chains are driving Western governments to increase their investment in critical minerals within the sub-Saharan African region, further encouraging local development.

Mainland China is likely to counter these US and EU efforts with targeted new investment by both state-led and private Chinese companies. Post-coup administrations not recognized by the US and the EU are likely to be particularly receptive to such investment proposals.

5. International climate finance shortfalls will continue in 2024.

Sub-Saharan African leaders are near-certain to continue presenting requests for expanded financing from wealthier countries and multilateral development banks (MDBs) for a "just and equitable energy transition" in 2024. For those sub-Saharan African countries that have received large financing pledges, the funding mechanism appears burdensome. In 2024, sub-Saharan African countries will continue to push for the mobilization of climate finance by supporting initiatives. Even if these channels do expand, national governments of sub-Saharan Africa will continue to pursue climate finance mobilization efforts by their own means.

Innovative debt-based financing instruments are becoming increasingly popular, with the European Investment Bank recently having announced plans to support up to five debt-for-nature liability management funding exercises annually. Even if use of such tools expands, as is likely, the sub-Saharan African region is very unlikely to mobilize financing on sufficient scale to cover its climate transition needs. Other financial instruments such as green bonds will also need to be used more extensively to provide funding for the energy transition in sub-Saharan Africa. Funding will be uneven given the limited access for multiple sub-Saharan African states.

6. South Africa's ruling African National Congress may lose its parliamentary majority.

South Africa's presidential and parliamentary elections due in May 2024 will be the first election testing the dominance of the ruling African National Congress (ANC) party. The party has been in power since the first democratic elections of 1994 with a firm majority. The ANC has consistently but gradually received a declining share of the vote in legislative elections. Several opinion polls suggest the ANC is likely to attain only 50% or less of the vote in the 2024 elections, potentially indicating the need for a minority government or an ANC-led coalition government. Political rallies by opposition parties in large economic hubs such as Gauteng and KwaZulu-Natal provinces risk temporary business disruptions. Inadequate pre-electoral fiscal consolidation reflecting higher public-sector wages and the extension of the social welfare grant for the unemployed will hinder improvement in the country's debt metrics and sovereign risk premium, while encouraging weakness of the South African rand prior to the elections.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.