Small economies in the Portuguese language world shine during year of hardship for larger ones

Smaller, though also more diversified: small economies of the Portuguese language world such as Guinea-Bissau and Cabo Verde have better growth prospects in 2016 than larger ones such as Angola that are more dependent on commodities.

As economic growth in sub-Saharan Africa drops to its lowest level in the last 20 years (1.4 percent), the Regional Economic Outlook for the region released in October by the International Monetary Fund indicates that Guinea-Bissau, São Tomé and Príncipe and Cabo Verde are among countries with the best growth estimates.

The IMF forecasts that the economies of Guinea-Bissau, São Tomé and Príncipe and Cabo Verde will respectively grow by 4.8 percent, 4 percent and 3.6 percent in 2016. In Mozambique, marked by austerity and uncertainty owing to the political and security situation, estimated growth is 4.5 percent, while Angola is stagnating and Equatorial Guinea should post a recession of 9.9 percent.

“The external environment facing many countries has deteriorated, notably with commodity prices at multi-year lows and financing conditions markedly tighter; also, the policy response in many countries most affected by these shocks has been slow and piecemeal, raising uncertainty, deterring private investment and stifling new sources of growth,” stated the director of the IMF’s African Department, Abebe Aemro Selassie, in comments reported by the organisation.

The most recent Bank of Portugal report on the economies of the Portuguese-speaking African countries (PALOPs) states that economic activity in Cabo Verde is expected to revive in 2016, “mainly driven by investment, with the recovery from delays in 2015 and the launch of a number of private projects in the tourism sector.”

The Bank of Portugal’s annual study on “Economic Developments in the PALOPs and Timor-Leste 2015-2016” was recently presented during the annual meeting of heads of central banks of the Portuguese language countries. It indicates that the main risks for the Cabo Verdean economy are the possibility of lower-than-expected external demand performance, along with uncertainty stemming from the country’s three elections this year and developments in public finances and general government debt.

For Guinea-Bissau the Bank of Portugal notes improved conditions, a process begun in 2014 and maintained in 2015, despite significant risks associated to political uncertainty in the country, which has prevented access to some support promised by the international community, namely by the IMF.

“Despite this challenging environment, Guinea-Bissau’s economic performance in 2015 was very positive, giving continuity to the recovery that started in the previous year. The good cashew nut harvest – accounting for 80 to 90 percent of goods exports – and favourable terms of trade developments were decisive for the 4.8 percent increase in output in 2015,” which should continue in 2016, the Bank of Portugal affirms.

In 2015 São Tomé and Príncipe recorded slightly slower growth compared to the previous year, basically due to late approval of the budget and falling exports. This year’s expected recovery been weaker than expected.

Current official estimates for Mozambique have been successively lowered, in an environment marked by more risks affecting growth in 2016, associated to “further delays in the construction of infrastructures to exploit liquefied natural gas if there continues to be a stalemate in negotiations between the government and involved companies,” the Bank of Portugal report states.

“The main long-term risks to the Mozambican economy are associated to persistently low commodity prices and a significant slowdown in relevant partners such as China. These developments may delay investments in energy exploration, thereby affecting Mozambique’s growth potential,” it adds.

The report indicates that Angola will continue to suffer the impact of low oil prices, which has created a “challenging external environment felt across all economic sectors, most notably in the non-oil sector, largely due to a foreign currency shortage.”

Regarding Portugal’s trade relations with the PALOPs and Timor-Leste, the report notes lower exports and imports, down 27 percent and 28 percent respectively, while Portuguese direct investment in those countries was again positive in the wake of disinvestment observed in 2014

The PALOPs official debt to Portugal continued to decline, intensified by the stronger dollar against the euro, thereby lowering dollar values of credit contracted in the European currency. (Macauhub)