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 lacklustre economic performance of Africa, which is forecast to grow at 3.3 percent in 2016, The World Bank said in a report.
It said in its twice-yearly Africa’s Pulse that economic activity in Sub-Saharan Africa slowed in 2015, with GDP growth averaging 3.0 percent, down from 4.5 percent in 2014. T
This means that the pace of expansion decelerated to the lows last seen in 2009, the report said, adding that overall, growth is projected to pick up in 2017-2018 to 4.5 percent.
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. There were some bright spots where growth continued to be robust such as in Côte d’Ivoire, which saw a favourable policy environment and rising investment, as well as oil importers such as Kenya, Rwanda, and Tanzania, the report said.
The external environment confronting the region is expected to remain difficult as policy buffers are weaker in a number of countries, constraining their policy response, the report said, adding that delays in implementing adjustments to the drop in revenues from commodity exports and worsening drought conditions present risks to Africa’s growth prospects.
”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,” said Makhtar Diop, World Bank Vice President for Africa.
Several countries are expected to see moderate growth. Among frontier markets, growth is expected to edge up in Ghana, driven by improving investor sentiment, the launch of new oilfields, and the easing of the electricity crisis. In Kenya, growth is expected to remain robust, supported by private consumption and public infrastructure investment.
The projected pickup in activity in 2017-2018 reflects a gradual improvement in the region’s largest economies – Angola, Nigeria, and South Africa – as commodity prices stabilise and growth-enhancing reforms are implemented.
African Cities as Engines of Growth
As Africa undergoes rapid urban growth, there is a window of opportunity to harness the potential of cities as engines of economic growth. The rapid decline in oil and commodity prices has adversely affected resource-rich countries and signalled an urgent need for economic diversification in Africa. Urbanisation and well managed cities provide a major opportunity to offer a springboard for diversification.
The growth of cities, when well managed, can spur economic growth and productivity. But African cities are currently not delivering agglomeration economies or reaping urban productivity benefits. Instead they suffer from high housing and transport costs, in addition to the high cost of food that takes up a large share of urban household budgets.
To build cities that work—cities that are liveable, connected, and affordable, and therefore economically dense—policy makers will need to direct attention toward the deeper structural problems that misallocate land, fragment development, and limit productivity, the report said.
Commodity price drops have lowered Africa’s terms of trade in 2016 by an estimated 16 percent, with commodity exporters seeing large terms-of-trade losses. Across the region in 2016, the impact of this shock is expected to lower economic activity by 0.5 percent from the baseline, and to weaken the current account and fiscal balance by about 4 and 2 percentage points below the baseline, respectively, the report said.
It forecast that sub-Saharan Africa countries will continue to face low and volatile prices in global commodity markets and urged governments must take steps to adjust to a new, lower level of commodity prices, address economic vulnerabilities, and develop new sources of sustainable, inclusive growth.