Africa’s largest economies feel the heat

(BVO) – South Africa’s parliament descends into chaos.

Protesters stormed the building, demanding President Jacob Zuma pay back some of the taxpayers’ funds used for a $23 million upgrade of his rural home.

It’s been a turbulent time for the economy, too.

Growth forecasts for 2015 have been cut from 3.2 to 2.5 per cent, and the rand collapsed to a 13 year low earlier in the week as the country deals with an ongoing power crisis.

Energy reserves are low, and South Africa’s Eskom has admitted rolling blackouts will be inevitable for the next three years.

The country has benefitted hugely from the run up in commodity prices over the last few years, but Commerzbank’s Peter Dixon says that’s helped mask problems at home.


“With commodity prices having come off the top, then it’s going to be increasingly difficult to cover up some of the problems at home and I think the government will have to work a lot harder to put in place institutional reform. It will have to work a lot harder to convince international investors that it’s not a corrupt Third World economy.”

Africa’s biggest economy Nigeria is also feeling the heat.

Its currency fell through the key level of 200 to the dollar this week, due to weak oil prices and growing uncertainty after presidential elections were postponed.

Central Bank governor Godwin Emefiele is calling for calm.


“There’s no need for anybody to panic, the Nigerian economy remains in our view very very resilient.”

But investors and Nigerians alike are looking for ways to dump the currency, and derivatives contracts show it may fall a further 30 per cent over the next year.


“I think whenever central bank governors come out and say those kind of things, markets tend to take fright. But I think most savvy investors realise that there are problems in Nigeria and if they haven’t panicked already they’re probably not going to do so. They’re going to wait and see which way the politics goes before deciding which way they want to jump.”

The Central bank is burning through $110 million a day to support the local currency.

And as long as the political situation remains uncertain, the economy is likely to remain under pressure.