Africa’s Economic Growth Slashes AMIDST Global Economic Weakness

LAGOS, Nigeria, Capital Markets in Africa — Amid falling commodity prices and continuing weakness in global growth, Sub-Saharan Africa’s gross domestic product (GDP) growth decelerated to an estimated 3.0% in 2015 from 4.5% in 2014, according to the latest World Bank projections. This low pace of growth, which translates into an increase in the region’s GDP per capita of less than 0.5%, was last seen in 2009 following the global financial crisis, and contrasts sharply with the robust 6.8% average annual GDP growth in Sub-Saharan Africa (SSA) from 2003-2008. 

These latest figures are outlined in the World Bank’s new Africa’s Pulse, the twice-yearly analysis of economic trends and the latest data on the continent. The analysis shows that the slowdown comes amidst a sharp drop in global commodity prices, weak global growth that was underpinned by a slowing of growth in emerging market economies, including China, and volatile financial markets.

The fall in commodity prices represents a significant shock for the region, as fuels, ore and metals account for more than 60% of the region’s exports. The impact is seen most in oil-exporting countries, where average growth is estimated to have slowed from 5.4% in 2014 to 2.9% in 2015. Growth fell sharply in Nigeria, the Republic of Congo, and Equatorial Guinea. Activity also weakened significantly in non-energy mineral-exporting countries, including Botswana, Sierra Leone, South Africa and Zambia. In several commodity exporters, adverse domestic developments, such as electricity shortages, severe drought conditions, policy uncertainty, and security threats, exacerbated the direct impact of declining commodity prices.

There were some bright spots, mostly among oil importers, where economic activity remained robust. Côte d’Ivoire saw broad-based growth, supported by a favorable policy environment, rising investment, and increased consumer spending. Ethiopia and Rwanda continued to post solid growth, supported by public infrastructure investment, private consumption, and a growing services sector. Elsewhere, growth remained buoyant in Kenya, amid improving economic stability; Tanzania registered strong growth, underpinned by expansion in construction and services sectors.  

Africa’s Pulse finds that the recent commodity price drops have deteriorated the region’s terms of trade in 2016 by an estimated 16%, with commodity exporters seeing large terms-of-trade losses. Some 12 countries, housing nearly 36% of the region’s population and representing about half of its economic activity, are considered vulnerable in terms-of-trade losses that are expected to exceed 10%. About 17 countries with more than 25% of SSA’s population, fall into the group of countries with terms-of-trade gains.

With commodity prices expected to remain low for longer amid a gradual pickup in global activity, the Pulse forecasts that average growth in the region will remain subdued at 3.3% in 2016. For 2017–18, growth is projected to average 4.5%. The projected pickup in activity in 2017–18 reflects a gradual improvement in the region’s largest economies—Angola, Nigeria, and South Africa—as commodity prices stabilize and policies become more supportive of growth.

“With external conditions likely to remain less favorable than in the past, African countries need to accelerate the pace of structural reforms aimed at boosting competitiveness and diversification,” said Punam Chuhan-Pole, World Bank Africa acting chief economist and author of the report. “In most countries this will mean improving the business climate, reducing the cost of cross-border trade, reforming the energy sector to ensure affordable, reliable, and sustainable energy services, and making the financial sector more inclusive.”

Looking Ahead 
The rapid decline in oil and commodity prices has signaled an urgent need for economic diversification in Africa. Africa’s Pulse examines the spatial development of African cities, and finds that well-managed cities provide a major opportunity for much needed economic diversification. Today cities in Africa are crowded, disconnected, and costly for families and for companies, according to World Bank research. To build cities that work policy makers will need to direct attention toward the deeper structural problems that misallocate land, fragment development, and limit productivity.