African economic growth to dip to 1.6 pct this year: World Bank

LAGOS (Capital Markets in Africa) —Growth in sub-Saharan African countries will stall to just 1.6% this year, the lowest in over two decades, a report said Thursday, as one of the world’s once fastest-growing frontiers continues to lose steam because of overdependence on oil and commodity exports, and poor policies.

The disappointing rate of economic expansion is well below the global average of 2.3%, the World Bank said in its twice-annual “Africa’s Pulse” report.

Just in April, the World Bank publication had seen growth in sub-Saharan Africa reaching 3.2% this year, but the slide in the region’s two biggest economies, Nigeria and South Africa, as well as other oil and commodity exporters, has been steeper than anticipated.

“Shocks from collapsed commodity prices and tighter financial conditions, exacerbated by domestic pressures arising from policy uncertainties, adverse weather conditions, and political and security concerns, have continued to weigh on activity in the region,” the report said.

Previously robust growth in the region was propped up by high oil and mineral prices, but their global collapse has unmasked deep vulnerabilities in key African economies like Nigeria, South Africa and Angola.

Smaller economies that rely on current or future oil and gas proceeds, including South Sudan, Equatorial Guinea and Mozambique, are also facing severe problems exacerbated by politics and conflict.

The future, too, looks uncertain, the World Bank said.

The report saw the region growing by 2.9% next year—still below the 3% expansion rate of 2015—but warned that “the balance of risks… remains heavily tilted to the downside.”

This means that even that 2.9% growth projection for 2017 could be optimistic as low oil and commodity prices could persist.

Much of the recovery in growth for Africa will depend on China’s continued industrial and economic rebalancing and the impact of the U.K.’s departure from the European Union, the report said.

And while a handful of African countries like Ethiopia, Kenya and other oil importers are in better shape, their performance isn’t insulated from an overall decline in investor appetite for sub-Saharan Africa, which has been deeply dented since the start of the year.

The region was an investor darling as it offered high returns and solid growth rates unseen in most of the rest of the world, with the exception of southeast Asia, in particular in 2013-2014.

One key area of investor interest was sovereign debt, with African countries borrowing heavily in international capital markets between 2012 and 2015. The borrowing spree was welcomed as a new source of funding, but has left several nations with massive piles of debt denominated in U.S. dollars as their local currencies lost value, making them harder to repay.

The World Bank noted that 2016 has been the slowest recent year for sub-Saharan African sovereign borrowing, with just Ghana and South Africa issuing bonds to date.