When I landed in Nigeria’s capital of Abuja I was taken by the modern and cavernous nature of its brand-new airport terminal, a reflection of the country’s future ambitions. One of Africa’s best airports, in Accra, Ghana, also boasts a new terminal. Meanwhile, foreign travelers can apply online for an e-visa before they fly to Ivory Coast, pick it up at the airport when they land and emerge into the bustling streets of Abidjan quickly and efficiently.
First impressions don’t lie: West Africa is making progress, particularly when it comes to infrastructure. But when I traveled to the region in May, I was more interested in learning how the region’s largest economies would fare during crucial political transitions. President Muhammadu Buhari of Nigeria was recently elected to a second term, while both Ghana and Ivory Coast will hold presidential elections next year.
Nigeria: The giant taking smaller steps
Nigeria’s economy is by far the largest of the three, but that’s only one reason we expect much slower annual growth there than in Ghana or Ivory Coast over the next few years (2% vs. 6-8%). For one thing, the Nigerian economy depends heavily on oil. Even though oil production directly accounts for less than 10% of GDP, the fact that oil sales are the country’s primary source of liquidity mean it plays a much larger indirect role in the economy, particularly when prices swing. Corruption is another significant challenge.
Buhari reappointed Bank of Nigeria Governor Godwin Emefiele, which should keep the naira stable and comfort carry-hungry investors. However, investors can also expect more unconventional monetary policy as the central bank tries to manage reserves and the currency while minimizing negative economic externalities. Whether these policies or other initiatives can catapult growth from its current sub-optimal trajectory remains to be seen.
Ghana: Will Old Habits Die Hard?
Ghana has managed to grow and rebalance its economy in the four years since it entered an International Monetary Fund (IMF) program. But with the IMF out of the picture and a presidential contest looming in December 2020, many investors are wondering whether the country is headed back to the old days of living beyond its means.
Historically, Ghana has racked up debt ahead of elections as politicians attempt to curry favor with the electorate. Sensing a pattern, foreign investors sent the cedi plunging in Q1, after the Bank of Ghana unexpectedly cut interest rates. The central bank’s move followed the introduction of the 2019 budget, which called for raising public employee pay, robust spending on goods and services, and focusing on external borrowing to plug the funding gap.