IMF sees Nigeria, Angola, SA restart sub-Saharan growth engine

The sub-Saharan African economic outlook will remain fragile unless Nigeria is able to sustain recovery in oil production; Angola sustains higher public spending ahead of elections; and South Africa is able to see through the fading of drought effects, along with modest improvements in the terms of trade, says the International Monetary Fund (IMF).

The IMF sees a modest Sub-Saharan Africa’s growth rebound to 2.6 percent in 2017, but even that rebound will be largely driven by what it calls “one-off factors” in the three largest countries.

SSA’s growth has fallen to its lowest level in more than 20 years, the IMF said in its latest Regional Economic Outlook for Sub-Saharan Africa, titled, “Restarting the growth Engine” and launched in Abuja on Tuesday.

A modest recovery in growth, to 2.6 percent is expected in 2017, but underlying regional momentum remains weak, and at this rate, the region’s growth will continue to fall well short of past trends of 5-6 percent, and barely exceed population growth.

Growth slowed sharply in 2016, averaging 1.4 percent, the lowest in two decades.

 About two-thirds of the countries in the region, together accounting for 83 percent of the region’s

GDP, slowed down, although some countries still continued to expand strongly.

 The IMF blames this deteriorated outlook partly on delayed and still limited policy adjustments, with an ensuing increase in public debt, declining international reserves, and pressures on financial systems placing stress on private sector activity.

 “At this rate, growth for the region as a whole will continue to fall well short of past trends and barely deliver any per capita gains.”

According to the IMF, growth has slowed because despite the fact that many countries suffered a very substantial commodity price shock, there is also an insufficient policy adjustment to account for the broad-based slowdown in growth momentum in the region.

“This is especially the case among commodity exporters, notably oil exporters, such as Angola, Nigeria, and the countries of the Central African Economic and Monetary Union (CEMAC).”

 According to the report, the delay in implementing critical adjustment policies is leading to higher public debt, creating uncertainty, holding back investments, and risks, generating even deeper difficulties in the future.

The Fund warns on growing public debt stock, despite the region’s appetite to fix infrastructure, saying there is “No room for complacency.”

The report obtained by BusinessDay also shows that, improvements in commodity prices will provide some breathing space, but will not be enough to address existing imbalances among resource-intensive countries like Nigeria.

Oil prices for example, are projected to stay far below their 2013 peaks. Likewise, while they have been on a declining trend since early 2016, financing costs for frontier economies in the region remain higher than for other emerging markets, and they could rapidly tighten further against the backdrop of fiscal policy easing and monetary policy normalisation in the United States.

The outlook is also clouded by the incidence of drought, pests, and security issues, according to the report. While the impact of the drought that hit parts of southern Africa last year is fading, food insecurity appears to be rising, with parts of southern and eastern Africa facing drought and pest infestations. “Worse still, famine has been declared in South Sudan and is looming in northeastern Nigeria, as a result of past and ongoing conflicts.”

In suggesting policy priorities to restart the growth engine, the head of the IMF’s African Department, Abebe Aemro Selassie, said with all these challenges, strong policy decisions could turn things around. “Sub-Saharan Africa remains a region with tremendous potential for growth in the medium term, but with limited support expected from the external environment, strong and sound domestic policy measures are urgently needed to reap this potential,” Selassie said.

The priority should be to put renewed focus on macroeconomic stability, in order to set the stage for a growth turnaround. For the hardest-hit countries, fiscal consolidation remains urgently needed to halt the decline in international reserves and offset budgetary revenue losses.

Selassie further suggested that in addition, where available, greater exchange rate flexibility and the elimination of exchange restrictions will be important to absorb part of the shock. For countries where growth is still strong, he thinks it will be important to address emerging vulnerabilities from a position of strength.

The second priority is to address structural weaknesses to support macroeconomic rebalancing. “Structural measures are needed to ensure a sustainable fiscal position and help achieve more durable growth by improving tax collection, strengthening financial supervision, and addressing longstanding weaknesses in business climate that impede economic diversification,” he stressed.

Selassie said the third priority is to strengthen social protection for the most vulnerable people, noting the existing social protections programmes are often fragmented, not well-targeted, and cover a small share of the population.

He suggests savings from expansive and untargeted schemes, such as fuel subsidies could be put towards helping vulnerable groups.

At the launch, Nigeria’s finance minister said the theme of the region’s outlook underscores the need for the region to commence accelerated development towards attaining sustainable development goals and achieving inclusive growth.

“Sub-Saharan Africa has come a long way and there is every reason to believe that it will continue to grow and develop with appropriate policy respo9nses, however, it cannot be business as usual.

She said the business model of extracting and exporting raw commodities with little or no value-add cannot continue. “We must pursue bold and necessary reforms, including economic diversification, structural transformation, fiscal consolidation, public finance management and macro-economic stability,” Adeosun stated

She suggested that given the size of the informal sector in the region, and the contribution to employment and household income, policy makers must improve our policies on this sector inorder to realize the full potential of the sector.

“Findings in this report constitutes a wake-up call to leaders in Africa to summon the political will to confront the challenges identified head-on, articulate and implement policies in the light of recent contractions in growth,” she stated.

Christine K suggested that government should look at off-grid solutions (solar, biomass) for SMEs. The beauty of this is that you do not need the grid, you do not need any prior investment for the SMEs to have power and be productive. Furthermore, they have no carbon emissions and it is private sector driven, thus, it does not need government intervention”.

Onyinye Nwachukwu, Abuja