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Triple threat risks pushing some of sub-Saharan Africa’s biggest economies into debt instability, further currency weakness and capital flight

Written by Phyllis Papadavid

The triple threat from China’s slowdown, low oil prices and a strong US dollar is pushing some of sub-Saharan Africa's biggest economies to the brink of further currency depreciation, debt distress and capital outflows, according to a new report by the Overseas Development Institute.

The report, ‘The triple transition of a slowing China, lower oil prices and a higher US dollar’, highlights how Nigeria, Ghana and the Democratic Republic of Congo are particularly vulnerable to one or a combination of the three threats.

It details how the impact of the three challenges is of particular importance now due to the inability of some SSA developing economies to protect themselves.

Report author Phyllis Papadavid, team leader on International Macroeconomics at the ODI, said: ‘Lower oil prices, China's balancing act and a strong dollar have been a part of the global economic landscape for some time.

‘It is crucial for SSA governments to address this triple shock now given their increasing constraints.

‘Countries facing declining reserves and increasing debt, such as Nigeria and Ghana, should adopt more flexible and proactive currency policies and diversify their export bases to help their growth prospects.’

The paper looks at how China’s economic developments, lower oil prices and a higher US dollar stand to affect 12 SSA economies.

It suggests while most SSA countries will benefit from a lower oil price, others such as Nigeria look particularly vulnerable to the fall in prices, due to the sharp decline in inward foreign direct investment (FDI) and foreign exchange reserves. Given this, Nigeria’s currency peg will come under continued pressure.

Elsewhere, the report describes how the slowdown in China’s economy is a source of particular concern to sub-Saharan African commodity and oil exporters such as the DRC, though it adds China’s financial liberalisation and outbound investments could be a silver lining.

Despite expectations of US Fed tightening and dollar strength being scaled back, the report warns that US dollar resilience and capital re-allocation to developed economies suggests further capital outflows from SSA economies that have twin deficits in their external and government accounts.

ENDS

Notes to editors

  • The report ‘The triple transition of a slowing China, lower oil prices and a higher US dollar’ is due to be published on Wednesday, March 30
  • The Organisation for Economic Co-operation and Development (OECD) expects China to grow at 6.5% in 2016, less than half of its growth before the 2008 global financial crisis
  • Following a decline of 50% between mid-2014 and mid-2015, the West Texas Intermediate measure of oil prices is currently around $40 a barrel
  • Figures from the US Federal Reserve indicate the US dollar has appreciated by 26% from its July 2011 trough

For more information, a copy of the full report or to interview the report author, contact James Rush on 07808 791265 or email [email protected]