How the top four risks we predicted for Africa's economy played out, and what 2016 faces

With increasing revisions to economic growth, a tough 2016 could still be in the offing, testing continent's famed resilience.

AFRICA is a continent on the move, and anyone who discounts it does so at their own peril. Be that as it may, the continent still has to contend with several risks that could impede its progress in the long term. At the beginning of 2015, we ran an article highlighting the four economic and geo-political risks that Africa would face throughout the course of the year. (READ: The top four risks for African economies in 2015: Will they swim or drown?).

Below, we take a look at how these forecasted risks played out in 2015, and how much of a bearing they had on Africa`s economic prospects.

The Ebola Threat

The Ebola outbreak in parts of West Africa had been the deadliest outbreak of the disease in recent memory. So much so, the World Health Organisation (WHO) declared it an international public health emergency. First detected on 23 March 2014 in Guinea, this recent occurrence of the Ebola virus dragged on for close to 20 months, leaving about 11,315 people dead in its wake, according to the WHO. The lethal virus was prevalent in Liberia, Sierra Leone, Guinea, Mali and Nigeria, with Liberia being the worst affected of these West African countries. According to data from the WHO, a total of 4,809 people lost their lives to the virus in Liberia, 3,955 in Sierra Leone,2,536 in Guinea and 8 people in Nigeria. Even the WHO readily concedes that these statistics are underestimated, considering the huge difficulties in collecting data in these countries.

But there are other subtle costs this epidemic leaves behind. A report by the United Nations Development Program (UNDP) noted that, the stigma and risk aversion caused by the Ebola outbreak has caused considerable amounts of damage, closing down of borders and has indirectly affected the economies of a large number of countries in the sub-region. “In the best-case scenario, the mineral-rich region may lose on average $3.6 billion per year for the next three years before the West African economies start to recover,” the report further stated. The World Bank also estimates that these economies will lose at least $2.2 billion in foregone economic growth going forward, as a result of the epidemic.

Though the disease has now largely been contained, concerns still exist over the capabilities of these countries to handle future outbreaks. The health-care systems in the three most affected countries are glaringly weak. Sierra Leone spends about $300 per person in Purchasing Power Parity terms on health-care, whilst Spain for instance, spends $3,000. Guinea only has 10 doctors per 100,000 people, compared to other developed nations with an average of 245 doctors for the same number of patients. 

Slumping Commodity Prices

Africa`s reliance on its extractive industries means that it is prone to exogenous economic shocks. Countries like Zambia, Nigeria and South Africa whose economies rely heavily on Copper, Oil, Platinum and Gold exports respectively, bore the major brunt of the softening commodity prices in 2015.  Data shows that the prices of most extractive minerals and products has plunged 46% since 2011 cumulatively, whilst the supply of these commodities has increased exponentially, as developing nations produce more and more to earn the same amount of dollars as before the commodity price slump. This trend shows little signs of abating as demand from China which has been fueling the commodities boom since China joined the World Trade Organisation (WTO) in 2001 has begun to taper off.

The slow pace of transforming African economies from being resource based to more diversified economies has been exposed by this slump in commodity prices. For instance, there exists a surplus of close to 2 million barrels of oil per day between supply and demand, leaving countries like Angola and Nigeria where oil earnings account for significant amounts of total export earnings in the lurch. Oil prices have been ranging at around $35-$50 per barrel. Recently, Glencore announced that it was suspending operations at its copper mines in Zambia and the DRC that produce 400,000 tons of copper leaving many unemployed.

Fiscal revenues have largely been constrained in resource based African economies as commodity prices nose-dived. As a result, economic growth has been tepid and the prospects for these economies heading into 2016 are gloom. More still needs to be done to diversify Africa`s economies to maintain sustainable economic growth.

Military/religious extremism

Religious extremism has proven to be the thorn in the flesh for West Africa and the surrounding regions.  And it is not just Boko Haram, but other militant groups like al-Shabaab have continued to wreak havoc during the year. During the last quarter of 2015, there has been a series of deadly attacks by these militant outfits. In November, an African jihadi group linked to al-Qaida claimed responsibility for the deaths of at least 21 people at the Radisson Blu hotel in Mali, after gunmen stormed inside the hotel and opened fire on civilians.

This religious extremism continues to threaten the important social, economic and political gains that African governments have labored to achieve. Furthermore, if not contained, the risk of this extremism destabilising governments is still very high. Perhaps more worryingly, the African Union, while it has found the talk, had not marshaled the walk to thwart these insurgents; leading to the attacks becoming more pronounced and deadly.

Strengthening of the dollar

The greenback has been appreciating this year as the US economy has continued firm in its recovery. A return to normal monetary policy has seen the US Fed roll back its Quantitative Easing program and raise interest rates for the first time in over 7 years. This has not been good news for African, as most major currencies like the Naira, Cedi and the Rand have tumbled against the dollar.

Coupled with falling commodity prices, pressure on most African countries has been felt as they have run unsustainable current account deficits in 2015, causing increases in domestic interest rates. This has resultantly caused anemic growth in these economies. South Africa – Africa`s most industrialised economy - narrowly avoided recession in the 3rd quarter of 2015 and is set to miss even the sluggish 1.5%  2015 GDP growth target. The rand even fell to an all-time low of R16 to the dollar this earlier this month. African currencies are set for a tough 2016, as the US economy continues its resurgency

By and large, these risks hugely affected African economies in 2015, and though notable efforts were made to try to dampen the effects of these risks, Africa still has a long way to go. Going into 2016, a new set of risks, perhaps even more complex than these ones lies in wait, and governments and policy makers will have to skilfully navigate these risks to stay the development course. 

Here are some of the top risks that Africa faces in 2016. 

Unreliable rainfall patterns

Over 60% of the world`s total arable land is in Africa and it only follows that much of Africa`s economies are agro-based. The World Bank notes that agriculture employs 65% of Africa`s labour force and accounts for northwards of 32% of the continent`s total GDP. 

This renders the continent extremely sustainable to any adverse changes to weather patterns that will weigh heavily on agriculture activity. Rapidly changing weather patterns in recent years have caused an El nino which has reportedly caused record high temperatures and very low rainfall across large swathes of the continent, and heavy flooding in others. This has affected most African countries stretching from southern Africa even to East Africa, as this is forecast to be the worst drought to grip Africa in years. Already, the United Nations estimates that 29 million people in southern Africa do not have reliable food supplies and that at least 10 million people in East Africa will need food assistance in 2016.

This inclement weather will potentially affect food production in 2016, making the risks of increased hunger and malnutrition a reality going into the next year. Maize, which constitutes the staple diet for most African countries, has already reached record high price levels, threatening its affordability for most people, who live on less than $1.25 a day.

Political instability

In the recent months, political tensions have been simmering particularly in central Africa where the issue of presidential term limits has increasingly come to the fore. Burundi is currently on the cusp of civil war, following President Pierre Nkurunziza`s controversial third term. Congo- Brazzaville has also witnessed unrest too over term limits. For the Democratic Republic of Congo, President Joseph Kabila appears to be shaping for a third term despite a constitutional two-term limit on the presidency. He has postponed elections by four years as he argues that the country does not have the capacity to head to the polls. But it is his brutal crackdown on dissent that is worrying however. The situation is not different for the Central African Republic, ahead of a crucial December 30 vote. 

For these countries, the political landscape will likely continue to be volatile going into 2016 and the apparent indecisiveness and the forbearance of the African Union in dealing with upheavals will affect these country`s prospects going into 2016.

By and large, some of the underlying risks that African countries faced in 2015 such as slumping commodity prices and weakening of currencies will continue to affect economic growth in the New Year, and these must be dealt with. Evidence of the adverse effects of these risks on otherwise stable countries is becoming all too apparent. Botswana for instance, is now in a recession following a 3.7% contraction in the third quarter, as diamond and copper production dropped on the back of lower prices. 

These risk are real and must be confronted head on.

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