World Bank projects SSA’s growth to slow to 3.7%

Sub-Saharan Africa will see its economic growth slow to a six-year low of 3.7 percent, on account of drops in oil prices and other commodities, and worsened by weak global conditions, the World Bank projects in its latest economic report.

The World Bank notes that Sub-Saharan Africa countries are continuing to grow, albeit at a slower pace, due to a more challenging economic environment and that growth will slow in 2015 to 3.7 percent from 4.6 percent in 2014, reaching the lowest growth rate since 2009, according to new World Bank projections.

Sharp drops in oil prices and other commodities have brought on the recent weakness in growth. Other external factors such as China’s economic slowdown and tightening global financial conditions weigh on Africa’s economic performance, according to Africa’s Pulse. Compounding these factors, bottlenecks in supplying electricity in many African countries hampered economic growth in 2015.

These latest figures are outlined in the World Bank’s new Africa’s Pulse, the twice-yearly analysis of economic trends and the latest data on the continent.

The 2015 forecast remains below the robust 6.5 percent growth in GDP which the region sustained in 2003-2008, and drags below the 4.5 percent growth following the global financial crisis in 2009-2014. Overall, growth in the region is projected to pick up to 4.4 percent in 2016, and further strengthen to 4.8 percent in 2017, the World Bank notes.

“The end of the commodity super-cycle poses an opportunity for African countries to reinvigorate their reform efforts and thereby transform their economies and diversify sources of growth. Implementing the right policies to boost agricultural productivity, and reduce electricity costs while expanding access, will improve competitiveness and support the growth of light manufacturing,” says Makhtar Diop, World Bank Vice President for Africa.

The National Bureau of Statistics is already projecting Nigeria real GDP to stabilize at 2.63 per cent in 2015, still lower than the 6.22 per cent recorded in 2014 and the lowest in recent years.

According to Africa’s Pulse, several countries are continuing to post robust growth. Cote d’Ivoire, Ethiopia, Mozambique, Rwanda and Tanzania are expected to sustain growth at around 7 percent or more per year in 2015-17, spurred by investments in energy and transport, consumer spending and investment in the natural resources sector.

But the region’s rich natural resources have made it a net exporter of fuel, minerals and metals, and agricultural commodities. These commodities account for nearly three-fourths of the region’s goods exports. Robust supplies and lower global demand have accounted for the decline of commodity prices across the board. For instance, the drop in the prices of natural gas, iron ore, and coffee exceeded 25 percent since June 2014, according to the report.

Weaker growth complicates the task of accelerating poverty reduction. The report notes that although progress in reducing poverty in Sub-Saharan Africa may have been faster than we thought, the region will fall short of achieving the Millennium Development Goal of halving the share of the population living in poverty between 1990 and 2015. Fragile countries have lagged behind the most in reducing poverty. Despite progress, non-income measures of well-being are also lagging.

Global growth is softening amid deceleration of growth in China and weaker economic performance in a range of countries. The pace of global expansion is expected to be 2.5 percent in 2015, slightly below the 2.6 percent rate of 2014, and strengthening to 3.0 percent in 2016-17.

A less favorable global environment is presenting a challenge to Sub-Saharan Africa’s growth performance and prospects. After decelerating in 2015, output growth is expected to recover in 2016-17, but the pace of expansion will remain below that of 2003-08. This underscores the need for governments in the region to improve domestic revenue mobilization, enhance the efficiency of public expenditures, and redouble efforts to implement structural reforms.

Africa’s Pulse notes that overall decline in growth in the region is nuanced and the factors hampering growth vary among countries. In the region’s commodity exporters—especially oil-producers such as Angola, Republic of Congo, Equatorial Guinea, and Nigeria, as well as producers of minerals and metals such as Botswana and Mauritania, the drop in prices is negatively affecting growth. In Ghana, South Africa, and Zambia, domestic factors such as electricity supply constraints are further stemming growth. In Burundi and South Sudan threats from political instability and social tensions are taking an economic and social toll.

Fiscal deficits across the region are now larger than they were at the onset of the global financial crisis, the report finds. Rising wage bills and lower revenues, especially among oil-producers, led to a widening of fiscal deficits. In some countries, the deficit was driven by large infrastructure expenditures. Reflecting the widening fiscal deficits in the region, government debt continued to rise in many countries. While debt-to-GDP ratios appear to be manageable in most countries, a few countries are seeing a worrisome jump in this ratio.

“The dramatic, ongoing drop in commodity prices has put pressure on rising fiscal deficits, adding to the challenge in countries with depleted policy buffers,” says Punam Chuhan-Pole, Acting Chief Economist, World Bank Africa and the report’s author. “To withstand new shocks, governments in the region should improve the efficiency of public expenditures, such as prioritizing key investments, and strengthen tax administration to create fiscal space in their budgets.”

Moving Forward, growth in Sub-Saharan Africa will be repeatedly tested as new shocks occur in the global economic environment, underscoring the need for Governments to embark on structural reforms to alleviate domestic impediments to growth, the report notes.

Investments in new energy capacity, attention to drought and its effects on hydropower, reform of state-owned distribution companies, and renewed focus on encouraging private investment will help build resiliency in the power sector.

The World Bank further recommends that Governments could boost revenues through taxes and improved tax compliance. Complementing these efforts, governments can improve the efficiency of public expenditures to create fiscal space in their budget.

 

Onyinye Nwachukwu