EM turbulence spreads to Africa

The turmoil in EM financial markets over the past six months has spread to a number of economies in sub-Saharan Africa (SSA), taking some of the gloss off the region’s upbeat growth story in the process. The realisation that global monetary conditions are set to tighten over the next year or so has led investors to pay closer attention to individual countries’ domestic vulnerabilities. As a result, both the Ghanaian cedi and Nigerian naira have slumped to all-time lows against the US$ this month. However, the turbulence has not affected all countries. Indeed, non-commodity currencies such as the Kenyan shilling have held up relatively well. What’s more, although some countries may be required to tighten policy and are now set for a period of weaker growth, we don’t expect market pressures to result in a significant slowdown in economic activity. As such, at the aggregate level, SSA should still remain one of the world’s best performers over the coming years.