Economic activity in the SSA region slowed in 2015, with GDP growth averaging 3 percent, down from 4.5 percent in 2014, meaning that the pace of expansion decelerated to lows last seen in 2009.
The African Pulse report comes just ahead of the 2016 spring meetings for the International Monetary Fund (IMF) and the World Bank, which is expected to raise concerns and hold talks around the slowing pace of global economic recovery, here in Washington DC.
“The 2016 growth forecast remains subdued at 3.3 percent, way below the robust 6.8 percent growth in GDP that the region sustained in the 2003-2008 period. Overall, growth is projected to pick up in 2017-2018 to 4.5 percent,” the report noted.
The plunge in commodity prices , particularly oil, which fell 67 percent from June 2014 to December 2015 – and weak global growth, especially in emerging market economies, are behind the region’s lackluster performance.
In several instances, the adverse impact of lower commodity prices was compounded by domestic conditions, such as electricity shortages, policy uncertainty, drought, and security threats, which stymied growth.
For 2017–18, SSA growth is projected to average 4.5 percent, the World Bank projects in the report where it noted that, “the projected pickup in activity in 2017–18 reflects a gradual improvement in the region’s largest economies—Angola, Nigeria, and South Africa—as commodity prices stabilise and policies become more supportive of growth.
“Growth will remain lackluster in Sub-Saharan Africa in 2016, weighed down by low and volatile commodity prices,” the bank warned.
Nigeria’s economy slowed 0.73 percent points to 2.11 percent in the last quarter of 2015 from levels recorded in the preceding quarter, as all sectors (oil and non-oil) which contribute to the nation’s GDP slowed, apart from ‘Other Services’.
The IMF, which would release the latest World Economic Outlook report today, however sees Nigeria to be improving slightly to 3.2 percent in 2016 but could rebound to 4.9 percent in 2017, supported by an appropriate policy package that would, for example, enable priority infrastructure investments.
The external environment confronting the region is expected to remain difficult. In a number of countries, policy buffers are weaker, constraining these countries’ policy response. Delays in implementing adjustments to the drop in revenues from commodity exports and worsening drought conditions present risks to Africa’s growth prospects.
Recent commodity price movements represent a deterioration in the region’s terms of trade in 2016 by an estimated 16 percent (first-order approximation), with commodity exporters, especially oil exporters, seeing large terms-of-trade losses.
For the region as a whole, it is estimated that the impact of the terms-of-trade shock will lower the level of economic activity in 2016 by 0. 5 percent, from the baseline, and weaken the current account and fiscal balance by about 4 and 2 percentage points below the baseline, respectively.
”As countries adjust to a more challenging global environment, stronger efforts to increase domestic resource mobilisation will be needed. With the trend of falling commodity prices, particularly oil and gas, it is time to accelerate all reforms that will unleash the growth potential of Africa and provide affordable electricity for the African people,” says Makhtar Diop, World Bank Vice President for Africa, who opened the video conference discussions on the report in Washington.
But according to the African Pulse report, the World Bank believes that addressing growing economic vulnerabilities and developing new sources of sustainable, inclusive growth are key priorities for the SSA region.
Nonetheless, risks to the outlook remain tilted to the downside, including a sharper than expected slowdown in China, further decline in commodity prices, delays in implementing the necessary adjustment to the export price shock in affected countries, worsening drought conditions, and political and security uncertainties.
The report further noted that as African countries move to rebuild momentum on growth, key policy challenges include adjusting to a new, lower level of commodity prices; addressing economic vulnerabilities; and developing new sources of sustainable, inclusive growth.
“The rapid decline in oil and commodity prices has signaled an urgent need for economic diversification in Africa Urbanisation and well managed cities provide a major opportunity to offer a springboard for diversification,” the World Bank noted in the report.
“But for urbanisation to bring the benefits that it should, cities must become less costly for firms and hence more appealing to investors; in addition, cities must become kinder to their residents by offering services, amenities, and housing for the poor and the middle class,” it added.
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