Economy

Which African economies will perform in 2022?

With a projected GDP growth of 12.8%, Niger will be Africa's fastest growing economy next year. Photo credit: CONSTMACH

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Africa will once again be home to some of the world’s fastest-growing economies next year according to the International Monetary Fund (IMF). A total of 11 countries can expect GDP growth levels of 6% or more, including eight in West Africa.

Source: IMF

Diversified Economies

Most performing African markets have in common a relatively diversified economy, at the exception of South Sudan. Non-resource-intensive countries, such as Côte d’Ivoire, and economies with a strong mining sector such as Ghana or Mali, are expected to see robust growth in 2022, driven by a rebound in private consumption and investment as confidence strengthens and exports increase.

The fastest-growing African economies also share in common a growing and important agriculture industry. Strong agricultural growth and a faster-than expected recovery in commodity prices has in fact helped many African economies weather the economic storm induced by the COVID-19 pandemic.

Infrastructure Spending

Infrastructure spending will continue to support growth across the continent, especially in markets with big infrastructure projects such as Niger or Rwanda. Elsewhere like in Ghana and Côte d’Ivoire, economic recovery will translate into growth for the construction industry, especially as governments seek to expand basic infrastructure.

Social infrastructure is especially expected to receive a boost following the issuance of historic Eurobonds by Côte d’Ivoire and Benin in 2021, with a specific aim of investing into social and public infrastructure while financing budget deficits.

A Strong Potential for Trade

Several of the fastest-growing economies on the continent have leveraged on their geographical positions to create strong regional and intraregional trading networks. These are proving extremely useful as Africa rolls out its free-trade area and the bottlenecks created by the Covid19 pandemic ease.

Côte d’Ivoire, Ghana and Benin have all positioned themselves as gateway to the rest of West Africa and significantly invested into their ports infrastructure for instance. Efficient value-chains are notably helping to keep inflation down, with Niger, Benin, Senegal and Côte d’Ivoire recording inflation levels of only about 2%.

Overall, economic recovery hinges on countries deepening reforms that create jobs, encourage investment, and enhance competitiveness. The resurgence of the pandemic in 2021 and limited additional fiscal support will keep posing an uphill battle for policy makers as they continue to work toward stronger growth and improved livelihoods for their people.

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Why Nigeria’s LPG industry is an underrated investment opportunity

With a compound annual growth rate of 27% between 2018 and 2020, Nigeria’s liquefied petroleum gas (LPG) supply is amongst the fastest growing in Africa. Last year, the country absorbed its first million metric tonnes of LPG, up from 840,000 MT in 2019 and 635,650 MT in 2018. And the forecast for further growth is very positive. In a study released in July 2021 for the Clean Cooking Alliance, Fraym estimates that only 15% of Nigeria’s 49m households use LPG as clean cooking fuel. The rest relies on wood, especially in rural areas, or kerosene. The 9m Nigerian households that use clean cooking fuels are obviously concentrated in urban areas, especially in major cities such as Lagos, Ibadan, Benin City, Abuja, Kaduna, Kano and Port Harcourt. They also represent the major consumers of LPG in the country, given that industry and power have remained small LPG off-takers so far.   With 40m households yet to have access to clean cooking fuels, the potential is enormous to grow the country’s LPG supply and infrastructure. While most Nigerian households cannot afford LPG, the same study by Fraym also estimates that at least 6m households are urban early-adopters and likely to afford clean cookstoves in urban areas. This is a significat market that most marketers and distributors are currently targeting, and which could potentially afford to spend the annual average of NGN 2,800 per month per household for LPG consumption. The rest of Nigerian households are likely to continue relying on wood (NGN 1,100/month) and kerosene (NGN 1,200/month), at least for the time being. But the opportunity is not only in reaching out to the under-served. Nigeria still imports about half of its LPG supply, and while the growth of imports has been slowing down, it is still growing. Research by Hawilti shows that LPG imports, mostly from the USA and Equatorial Guinea, represented 52.3% of total Nigerian LPG supply in H1 2021 compared with an average of 53% in 2020. Source: PPPRA Nigerian domestic LPG suppliers remain limited, with Nigeria LNG representing 75% of all domestic LPG supply in H1 2021. New domestic suppliers have emerged this year, including in Kwale, Oredo, Egbaoma and Rumuji. But their production capacities remain small compared to market needs. Put simply, LPG is a tremendous import substitution business in Nigeria. Whoever produces will find a market, providing it is ready to sell domestically instead of seeking foreign exchange on the global export market. Meanwhile, infrastructure is being expanded. Three new LPG terminals are currently under-development: Ardova’s 20,000MT facility and Gas Terminalling’s 5,000 MT facility in Lagos and Chimons Gas’ 5,500 MT facility in Warri (Delta State). They are all expecting commissioning before the end of 2022. Ardova’s 20,000 MT storage facility in Lagos will notably act as an import and blending terminal and will be blending propane and butane once commissioned, a company executive confirmed Hawilti. It will also be able to receive LPG cargoes, be them imported or from Nigeria LNG. Meanwhile, Banner Energy continues to progress towards financial close for its own $65m, 13,000 MT LPG terminal in Akwa Ibom. It would be Southeast Nigeria’s biggest facility, and Banner Energy has appointed a financial advisor to progress to financial close. LPG will remain a hot commodity in Nigeria for years to come. Supply disruptions are currently sending prices up, further supporting market activity with several new private sector players eye trading opportunities in the short and medium-term. But the real challenge for the industry’s growth will remain that of affordability and finding out the right business models that work out for Nigeria’s 40m households in need of healthy and clean cooking fuels.

First wind turbine installed at Djibouti’s Goubet wind energy facility

In early August, Siemens Gamesa completed the installation of Djibouti’s first wind turbine at the Goubet wind farm in Djibouti. The 59 MW facility has been under construction since October 2020 and will be Djibouti’s first utility-scale wind project and the country’s first independent power producer (IPP). It is the result of a strong involvement into the project by the Africa Finance Corporation, which leads a consortium of Dutch investors, the Climate Fund Managers and Great Horn Investment Holdings (GHIH) within the project’s company, Red Sea Power. The AFC has been leading the project’s development since 2017 and developed it from concept to bankability before securing the 25-year take-or-pay power purchase agreement (PPA) with state-utility Électicité de Djibouti (EDD). Ghoubet notably aligns with Djibouti’s Vision Djibouti 2035, under which the authorities want to transition from the country’s complete reliance on domestic thermal energy in 2010 to 100% of renewable electricity sources by 2030. Details of the Goubet Wind Energy Facility are available in the “Projects” section within your Hawilti+ research terminal.