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The World Bank says the decline in growth rates in sub-Saharan Africa, due to both internal and external factors, was an opportunity for African countries to focus on reinvigorating reforms and diversifying sources of growth.
Punam Chunan-Pole, acting Chief Economist at the World Bank Africa, said there was the need for African governments to speed up or institute structural reforms in order to boost their competitiveness.
Projections from the fall edition of the World Bank Africa’s Pulse indicate that growth in Sub-Saharan Africa will further slow in 2015 to 3.7 percent, contrary to earlier predictions of a fall to four percent, from 4.6 in 2014.
Growth is, however, expected to rebound to 4.4 percent in 2016 and strengthen to 4.8 percent in 2017, owing to improvements in commodity prices, and the results of fiscal consolidation and continued investments in infrastructure.
The decline, according to the Bank, is the lowest growth rate since 2009, and is due to a more challenging economic environment spurred by both external and domestic factors.
Speaking at a briefing with Journalists from African countries via video conferencing, Ms. Chuhan-Pole, who is also Team Lead for Africa’s Pulse, the Bank’s bi-annual analysis of economic trends and latest data on the African continent, said the forecast remained below the robust GDP growth levels of 6.5 per cent which the region sustained between 2003 and 2008.
She noted that although the factors accounting for the overall decline in growth in the region varied among countries, Ghana, like South Africa and Zambia was affected by constraints with electricity supply.
“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,” the Pulse reported.
In other countries like Burundi and South Sudan, threats from political instability and social tensions also took an economic toll.
Ms. Chunam-Pole said external factors including the economic slow-down in China and tightening global financial conditions also weighed on Africa’s economic performance. The report also showed that weaker terms of trade, large current account deficits and generally larger fiscal deficits across the continent had led to rising government debt in many countries.
“Although government debt-to-gross domestic product ratios look manageable in most countries, they have increased in several frontier market economies (Ghana and Zambia), driven by non-concessional borrowing. External debt has increased notably in Ghana and south Africa.”
This growing external and fiscal vulnerability had raised concerns among investors, evidenced by rising sovereign bond spreads and higher yields on recent bond issuances. Moreover, weak fundamentals, coupled with the strong appreciation of the US dollar, have kept currencies across the region under pressure throughout the year.
“By end September, the Ghanaian cedi and south African rand had depreciated by more than 25 per cent against the US dollar, compared with 2014 levels, while the Angolan kwanza fell 38 percent,” she said, adding that the Ugandan shilling and Zambian kwacha weakened the most by depreciating 45 and 80 per cent respectively.
However, some countries, including Cote d’Ivoire, Ethiopia, Mozambique, Rwanda and Tanzania continued to post robust growth in spite of the projections, sustaining growth at around seven percent or more in 2015 to 2017. This feat, she noted, was spurred by investments in energy and transport, consumer spending and investment in the natural resources sector of their economies.
She noted that policy buffers in several countries were low thus constraining response to the current situation, saying there was the need to focus on reducing macroeconomic imbalances.
She also called for improved domestic resource mobilization such as through taxes or tax compliance as well as enhancing the efficiency of public expenditures to create fiscal space.
Ms. Chuhan-Pole said investments in infrastructure, for instance, should focus on areas where there was the potential for good returns to finance the debt incurred for the investment, adding that borrowing should be prudent, focusing on medium term frameworks that ensure debt sustainability.
