The marked drop in the price of oil and other raw materials, the slowdown in the Chinese economy and the sudden worsening in the conditions of global liquidity are all set to have a negative impact on economic growth in Sub-Saharan Africa.These are the findings outlined in the World Bank’s six-monthly report ‘Africa Pulse‘ that has predicted that in 2015 the macro-region will experience growth of 4%, significantly lower than the recent average of 4.4% and not far off the minimum level recorded over the last two decades.
However this figure is well above the global average for economic growth, which the World Bank estimates to be 2.9% for 2015. Nevertheless the decline highlights the vulnerability of the economy of the Sub-Saharan region, which has the second highest level of growth in the world.
Even though the Washington Institute has predicted that in 2016 growth in the Sub-Saharan countries should recover to reach 4.5%, it also forecast that progress will be gradual and will not be immune to possible dips in the future.
The World Bank’s report also identified that the recent escalation of violent conflicts poses serious security risks and this has a knock-on effect on the region’s potential for development. Furthermore the Ebola epidemic in Liberia, Guinea and Sierra Leone has caused more than ten thousand deaths and had a recessionary impact of at least 1.6 billion dollars while the outbreak also highlighted the existing weaknesses of the health system in a large part of the continent and the widespread threat posed by contagious diseases.
The deceleration of the Sub-Saharan economy is also due to the fact that the region is a net exporter of oil and other raw materials.
The nations dependent on oil exports have been hit hard by the effects of the current low in global prices. The region is also suffering as a result of the end of the so-called “commodities super cycle”, the era that began in 2000 and was notable for the extraordinary demand for raw materials due to the rapid expansion of the Chinese economy. The halving of oil prices has had wide-ranging repercussions in different African countries, first of all, Nigeria, where the precious resource is worth 90% of foreign exchange earnings and 70% of state revenues. The Nigerian Central Bank has been forced to intervene, raising taxes and devaluing the naira in order to counter the reductions in capital flows.
The World Bank analysts, however, do predict that Nigerian growth should recover in 2016 and continue its recovery over the following years, led by an economy that is relatively diversified and a service sector capable of functioning efficiently.
The fall in oil prices is set to continue to weigh heavily on the growth prospects of the less diversified economies of oil exporting countries, such as Equatorial Guinea and Angola. The same is true for Gabon, where the black gold represents 60% of GDP. Clearly such a situation will also worsen the trade deficit of these states, which will have to adopt drastic measures to contain expenditure in light of the expected fall in revenues.
Meanwhile the Ghanaian economy continues to suffer due to high inflation and policies of fiscal consolidation. In South Africa problems in the electric energy sector will continue to limit growth.
The report shows that the more diversified African economies and net importers of oil can actually enjoy some advantages from the current situation, in particular Ivory Coast, Kenya and Senegal. At the same time some of the poorest countries in the continent, such as Liberia and Sierra Leone, countries that spend 15% of their revenues on importing oil, will benefit from the fall in the price of crude.
It is worth remembering that only a quarter of African countries produce oil and many African economies are demonstrating an ability to deal with the fall in prices of raw materials thanks to a new organization of the market.
The opinion put forward by the World Bank is that in the future African countries, in order to optimize their development potential, will have to invest the revenues deriving from the wealth of natural resources very wisely.
Francisco Ferreira, Chief Economist for Africa at the World Bank, underlined the necessity for structural reform in the region in order to sustain growth in productivity in all sectors and to encourage an inclusive process that can create new jobs. He also stressed the importance of diversification of the economy in order to reduce dependence on the raw materials and oil and to improve the capacity to respond flexibly to the worsening economic conditions in the developed world.
Moreover the Sub-Saharan economies could benefit from a more educated and qualified workforce that would benefit all sectors.
African development is still limited by the widespread persistence of extreme poverty and profound inequality: the growth in GDP that has occurred in many African countries is yet to translate into a genuine improvement in the quality of life of life for the majority.
Translated by Nicholas Neiger