7

Africa: Becoming the Second Fastest Growing Region

Sub-Saharan Africa is the second fastest-growing region of the world today, trailing only developing Asia as China and India continue to grow at a significant rate.  This is remarkable compared to the current complicated state of the global economy, with Europe still struggling and the United States slowly on the mend.

In 2012, Sub-Saharan Africa maintained solid growth, with output growth at 5 percent on average. The factors that have supported the region through the Great Recession—strong investment, favourable commodity prices, and generally prudent macroeconomic management which continue to be at play.

Two Speeds of Growth, Extractive (oil, minerals) Tourism.

However, performance varies across countries, and the region has seen growth at two different speeds. Growth was very strong among oil-exporting and low-income countries. Exports such as oil, minerals, agricultural products, and tourism supported demand in these countries. Sectors that have been particularly dynamic include construction, agriculture, and mining (especially due to new extractive industry capacity coming on stream). In contrast, growth in middle-income countries slowed significantly in 2012 and it’s ongoing, reflecting their closer ties to the euro area. South Africa was also adversely affected by labour unrest in the mining sector. Two-speed growth is expected to persist in the region for the next few years. Middle-income countries will continue to grapple with sluggish economic activity, with little room for policy stimulus, while we expect solid growth among oil exporters and low-income countries.

 

Remaining Risks

Growth in sub-Saharan Africa is subject to downside risks, originating from inside and outside the region. Medium-term risks for the global economy remain high, although the near-term risk outlook has improved.

Among these outside factors, threats to sub-Saharan Africa include a prolonged near-stagnation in the euro area and a slowdown in major emerging market economies. Risk scenario analysis conducted for the Regional Economic Outlook indicates that these adverse shocks would affect sub-Saharan Africa’s growth, but not derail it. That said, countries with limited policy buffers and a narrow export base could experience more severe adverse effects. Domestic risks include adverse climatic developments and internal conflicts.

 

Policy Challenges

The region’s positive outlook is conditional on the implementation of sound economic policies. In particular, there is a strong case for strengthening policies in the short run in a number of countries to contain or prevent imbalances.

Large fiscal expansion plans in some oil exporters, such as Angola, Chad, and the Republic of Congo, raise concerns over absorption capacity and cost effectiveness. Continued higher interest rates set by the central bank are warranted in countries where inflation remains high and/or volatile, such as Ethiopia, Malawi, and Tanzania. In addition, with the risk of a significant global slowdown still present, rebuilding buffers to handle shocks from outside the region remains a priority in many fast-growing countries.

 

Job Creation, Top Priority

Accelerating job creation and reducing unemployment is a pressing challenge across the region. Middle-income countries have seen high levels of visible unemployment, whereas robust output growth in low-income countries is not producing strong growth in wage employment. Policy recommendations to redress this situation depend on individual country characteristics, but would include the following. Investing in education systems that deliver workers with the skill sets required by employers, amending labour market regulations to reduce disincentives for hiring while maintaining worker protection. And other major factors to help workers conditions improve and create high skill jobs such as engineering and so forth.

 

Renewed Interest of Global Investors

Recently, Sub-Saharan Africa’s access to international sovereign bond markets has grown significantly. This development reflects both easy global financial conditions and the region’s favourable economic prospects. Increasing access to global capital markets creates both opportunities and risks to sub-Saharan African economies. To make the most of the renewed global investor interest, we recommend countries maintain prudent fiscal policies that safeguard long-term sustainability. As Asian markets are heavily investing in the future, the demand for this country’s huge resources and arable land is in high demand, there will continue to be high interest from the developing countries in Asia and in the long term will benefit both continents.

 

Summary

The costs of starting a business in Africa have fallen by more than two-thirds over the past seven years, while delays for starting a business have been halved. The continent's middle class is growing rapidly - around 350 million Africans now earn between $2 and $20 a day which is a huge improvement for the region. "This progress has brought increased levels of trade and investment, with the annual rate of foreign investment increasing fivefold since 2000. For the future, improvements in such areas as access to finance and quality of infrastructure should help improve Africa's global competitiveness," A report said.

The challenge will be to address continuing inequality so that all Africans, including those living in isolated rural communities. In the long term all African nations must work together to establish a common pricing for their resources and not be bullied into lowering the prices for their commodities by competing against each other.