Worldbank: Economic Growth Sub-Saharan Africa +2.6% in 2017 - Ethiopia (+8.3%), Tanzania (+7.2%), Côte d’Ivoire (+6.8%)
05-06-2017 20:58:00 | by: Bas Vlugt | hits: 57471 | Tags:

Growth in Sub-Saharan Africa is projected to recover to 2.6 percent in 2017 from the sharp deceleration to 1.3 percent in 2016, and to strengthen somewhat in 2018. The upturn reflects recovering global commodity prices and  improvements  in  domestic conditions.  Most  of  the  rebound  will  come  from  Angola  and  Nigeria — the largest oil exporters. However, investment is expected to recover only very gradually, reflecting still tight foreign exchange liquidity conditions in oil exporters and low investor confidence in South Africa. Fiscal consolidation will  slow  the  pace  of  recovery  in  metal  exporters. Growth  is  expected  to  remain  solid  among  non-resource intensive countries. External downside risks to the outlook include stronger-than-expected tightening of global financing  conditions,  weaker-than-envisioned  improvements  in  commodity  prices,  and  the  threat  of protectionism. A key domestic risk is the lack of implementation of reforms that are needed to maintain durable macroeconomic stability and sustain growth.

Recent developments

After  slowing  sharply  in  2016,  growth  in  Sub-Saharan Africa (SSA) is recovering, supported by modestly rising commodity prices, strengthening external  demand,  and  the  end  of  drought  in several  countries.  Despite  recent  declines,  oil prices  are  10  percent  higher  than  their  average levels  in  2016.  Metals  prices  have  strengthened more  than  expected.  Meanwhile,  above-average rainfalls are boosting agricultural production and electricity  generation  in  countries  that  were  hit earlier  by  El  Niño-related  droughts  (e.g.,  South Africa,  Zambia).  Security  threats  subsided  in several countries. In Nigeria, militants’ attacks on oil pipelines decreased. The economic recession in Nigeria is receding. In the first quarter of 2017, GDP fell by 0.5 percent (y/y), compared with a 1.7 percent contraction in the fourth quarter of 2016.  The  Purchasing  Managers’  Index  for manufacturers returned to expansionary territory in April (Figure 2.6.1), indicating growth in the sector after contraction in the first quarter. Non-resource intensive countries, including those in the West  African  Economic  and  Monetary  Union (WAEMU), have been expanding at a solid pace.

Several  factors  are  preventing  a  more  vigorous recovery. In Angola and Nigeria, foreign exchange controls  are  distorting  the  foreign  exchange market, thereby constraining activity in the non-oil  sector.  In South  Africa,  political  uncertainty and  low  business  confidence  are  weighing  on investment.  The  previously  delayed  fiscal adjustment  to  lower  oil  revenues  in  the  Central African  Economic  and  Monetary  Community (CEMAC)  has  started,  restraining  domestic demand.  In  Mozambique,  the  government’s default  in  January  and  heavy  debt  burden  are deterring investment. In contrast to oil and metals prices,  world  cocoa  prices  dropped,  reducing exports  and  fiscal  revenues  in  cocoa  producers (e.g., Cote d’Ivoire, Ghana). In many countries, banks are seeking to limit credit risk by tightening lending  standards  and  reducing  credit  to  the private sector. Lastly, the drought in East Africa, which reduced agricultural production at the end of 2016, continued into 2017, adversely affecting activity in some countries (e.g., Kenya, Uganda), and  contributing  to  famine  in  others  (e.g., Somalia, South Sudan).

Current  account  deficits  of  oil  and  metals exporters are narrowing, helped by the pick-up in commodity prices. Oil exports are rebounding in Nigeria on the back of an uptick in oil production from  fields  previously  damaged  by  militants’ attacks. Mining companies across the region are resuming  production  and  exports.  In  contrast, current  account  balances  have  remained  under pressure  in  a  number  of  non-resource  intensive countries.  In  these  countries,  capital  goods imports  have  been  strong,  reflecting  ambitious public  investment  programs.  Capital  inflows  in the region are rebounding from their low level in 2016. Nigeria tapped the Eurobond market twice in the first quarter of 2017, followed by Senegal in May. Sovereign spreads have declined across the region from their November 2016 peak, with the notable exception of Ghana where they rose due to  concerns  about  fiscal  policy  slippages.  This trend reflects low financial market volatility, and a broader  rebound  in  investor  risk  appetite  for emerging  market  and  developing  economies (EMDE) assets.

Regional  inflation is gradually  decelerating  from its  high  level  in  2016.  Although  a  process  of disinflation  has  started  in  Angola  and  Nigeria, inflation  in  both  countries  remains  elevated, owing  to  a  highly  depreciated  parallel  market exchange rate. Inflation eased in metals exporters, reflecting stabilizing currencies after sharp depreciations, and lower food prices due to improved weather conditions (e.g., South Africa, Zambia).

An exception is Mozambique, where inflation was still  above  21  percent  (y/y)  in  April,  reflecting continued  depreciation.  Inflationary  pressures increased in non-resource intensive countries. In East Africa, drought led to a spike in food prices,
notably in  Kenya.  However,  in  countries  where the  drought  has  been  less  severe,  inflation  has remained  within  central  banks’  targets.  Low inflation in Tanzania, Uganda, and Zambia, and steadily falling inflation in Ghana allowed central banks to cut interest rates in early 2017.

Fiscal  deficits  remain elevated  across  the  region. Oil and metals exporters are still running sizable fiscal deficits. Fiscal balances have deteriorated in several non-resource intensive countries, reflecting a  continued  expansion  in  public  infrastructure.

Large  fiscal  deficits  and,  in  some  cases,  steep exchange rate depreciations, have resulted in rising public  debt  ratios in the  region.  A number  of  countries  have  embarked  on  fiscal consolidation  to  stabilize  government  debt  (e.g., Chad, South Africa). In early April, S&P Global Ratings  and  Fitch  downgraded  South  Africa’s sovereign credit rating to sub-investment status on account of heightened political uncertainty. 


Outlook


Growth  in  SSA  is  forecast  to  pick  up  to  2.6 percent in 2017, and average 3.4 percent in 2018-19,  slightly  above  population  growth. The recovery is predicated on moderately rising  commodity  prices  and  reforms  to  tackle macroeconomic  imbalances.  The  forecasts  are below those in January, reflecting a slower-than-anticipated  recovery  in  several  oil  and  metals exporters.  Per  capita  output  growth—which  is  projected to increase from -0.1 percent in 2017 to 0.7 percent in 2018-19—will remain insufficient to achieve poverty reduction goals in the region if the  constraints to  more vigorous  growth  persist (Bhorat and Tarp 2016).  Growth  in  South  Africa  is  projected to  recover from 0.6 percent in 2017 to 1.5 percent in 2018-19. A rebound in net exports is expected to only partially  offset  weaker  than  previously  forecast growth of private consumption and investment, as borrowing costs rise following the sovereign rating downgrade to sub-investment level. For Nigeria, growth  is  expected  to  rise  from  1.2  percent  in 2017  to  2.5  percent  in  2018-19,  helped  by  a rebound in oil production, as security in the oil-producing region improves, and by an increase in fiscal spending. In Angola, growth is projected to increase from 1.2 percent in 2017 to 1.5 percent in 2019, reflecting a slight pick-up of activity in the industrial sector as energy supplies improve.

The  subdued  recovery  in  the  region’s  largest economies  reflects  the  slower-than-expected adjustment  to  low commodity  prices  in  Angola and  Nigeria,  and  higher-than-anticipated  policy uncertainty in South Africa.

In  other  oil  exporters,  growth  is  expected  to strengthen  in  Ghana  as  increased  oil  and  gas production boosts exports and domestic electricity production.  Growth  will  be  weaker  than previously  projected in  CEMAC,  as  larger-than-envisioned  fiscal  adjustment  reduces  public investment.  In  several  metals  exporters,  high inflation and tight fiscal policy will be a greater drag on activity than previously expected.      

Growth  in  non-resource  intensive  countries should remain solid, on the basis of infrastructure investment,  resilient  services  sectors,  and  the recovery of agricultural production. Ethiopia and Tanzania in  East  Africa,  and  Cote  d’Ivoire  and  Senegal in WAEMU will continue to expand at a robust  pace  on  the  back  of  public  investment, although  some  countries  (e.g.,  Ethiopia,  Cote d’Ivoire) may not reach the high growth rates of the recent past. Many countries need to contain debt accumulation and rebuild policy buffers.

Risks

The  regional  outlook  is  subject  to  significant external risks. A sharp increase in global interest rates  could  discourage  sovereign  bond  issuance, which  has  become  a  key  financing  strategy  for governments  in  recent  years,  as  they  have
increasingly looked to global markets for the funds to finance domestic investment (Papadavid 2016). If sustained, increases in global interest rates could further reduce the ability of governments in the region to access foreign bond markets. In addition,
weaker-than-expected  growth  in  advanced economies  or  in  large  emerging  markets  could reduce  demand  for  exports,  depress  commodity prices,  and  curtail  foreign  direct  investment  in mining and infrastructure in the region (Chen and Nord  2017).  Finally,  the  announcement  of proposed  cutbacks  to  U.S.  official  development assistance will be a source of concern for some of the region’s smaller economies and fragile states. On  the  domestic  front,  in  countries  where significant fiscal adjustments are needed, failure to implement  appropriate  policies  could  weaken macroeconomic  stability  and  slow  the  recovery.

This  risk  is  particularly  significant  for  Angola, CEMAC countries, Mozambique, and Nigeria. In addition,  increased  militants’  activity  (e.g., Nigeria),  political  uncertainty  ahead  of  key elections  (e.g.,  South Africa),  and  drought  pose
risks  to  the  outlook.  Weather-related  risks  are elevated in East Africa. Inadequate rainfalls have led  to  abnormal  seasonal  dryness  in  areas  of Kenya,  southern  Ethiopia,  South  Sudan,  and Uganda (Famine Early Warning Systems Network 2017). Worsening drought conditions will severely affect  agricultural  production,  push  food  prices higher, and increase food insecurity. 


Source: Worldbank