Fall to 3 per cent the most lethargic in the last decade
BY Tullah Stephen
The International Monetary Fund (IMF) has warned that economic growth in sub-Saharan Africa will slow to 3 per cent in 2016, well below the 6 per cent average that was expected over the last 10 years and barely above population growth.
Emerging and developing economies in Asia and Europe saw marginal increases in expected growth, and a few countries such as Saudi Arabia, India and countries in the Association of South East Asian Nations (ASEAN) maintained their projections.
According to IMF,the fall is one of the most lethargic the region has experienced in the last decade though with considerable differences across the region.
Antoinette Sayeh, IMF’s Director of African Department who was speaking after the release of the IMF report, said Africa needs a substantial policy reset to reap the region’s strong potential. Particularly she points out commodity exporters and some market access countries, where the policy response has generally been insufficient to date. “Nearly half of African countries have become dependent on commodity exports, leaving them vulnerable to the collapsing prices of oil and mineral products,”she said.
Commodity price instability has a negative impact on economic growth, countries’ financial resources, and income distribution, and may often lead to increased poverty rather than poverty alleviation.
“Africa’s dependence on commodities is now rivaling the notoriously high levels of dependence in the Middle East,” says the report.
Countries, especially those in Africa, derive more than 90 per cent of their export earnings from commodities while other developing regions such as Latin America and Asia have managed to diversify their economies.
Further exacerbating matters for Africa and its growth is the severe drought in countries such as Ethiopia and Malawi, the decline of mineral prices in places such as Zambia and South Africa, the lingering impact of the Ebola crisis in Liberia and Sierra Leone, terrorist attacks in Chad and Cameroon. In addition,oil price collapses in several oil-rich nations and, to some effect, the Chinese economic slowdown and tighter access to financing have also contributed.
China’s diminished demand for Africa’ minerals has dramatically altered the trade balance, with a major surplus for Africa swinging to a deficit. African exports to China, the region’s biggest trade partner and source of investment, have declined sharply, whereas Chinese exports to Africa have dropped more moderately.
Whereas permanently lower commodity prices and tighter financial conditions for emerging economies would only have temporary effects on sub-Saharan Africa’s output growth, a permanent Chinese slowdown has a larger and persistent effect.
The only bright spots, according to the fund, are mostly in east African countries such as Kenya, Tanzania, Rwanda, Ethiopia and Ivory Coast in West Africa. A number of these nations have seen growth as a result of ongoing infrastructural investment efforts as well as private consumption. Analysts also attribute the growth to declining oil prices which they say has benefited these countries. However, the dip in prices of other commodities that they export as well as currency depreciations, have partly balanced the gains.
While the immediate outlook for many sub-Saharan African countries remains difficult, the region’s medium-term growth prospects are however, still positive.
In an article published by the Financial Times in May, Ms Sayeh,was quoted saying a renewed focus on financial sector development was among the areas the region ought to make quick treads.“The region could get 1.5 per cent more in annual growth if it was able to fill the gap between its financial sector and other low-income countries,” Ms Sayeh said, citing south-east Asian nations such as Vietnam as examples.
She added that the underlying drivers of growth that have been in play domestically in the region over the past decade or so — most importantly, the much improved business environment — generally continue to be in place.
Though revenue from extractive sector could
drop, some of the affected countries should consider containing their fiscal deficits and build a sustainable tax base from the rest of the economy. Countries outside the monetary unions, should look at the exchange rate elasticity as part of their macroeconomic policy package.
IMF adds that the continent continues to benefit from an improved business climate, favourable demographics, growing private consumption, and heavier investment in key infrastructure such as roads, railways and ports.
But in the near term, the IMF criticised many African governments for failing to adjust to the pressures. “They need to move faster to create a sustainable tax base and to allow more flexibility in their exchange rates as the first line of defence against the commodity crisis, the IMF said.