MANY Africans will have been glad to see the back of 2015, as a continental economy that had been the toast suddenly slowed up, hurting livelihoods and leaving many previously optimistic plans in the balance.
The prices of oil and other commodities tanked, terrorism and conflict concerns hurt key sectors like tourism while drought and floods threatened disrupted lives all across the continent. Events on other shores such as the USA’s monetary policy tightening further showed just how interlinked the world is, or more specifically, its markets.
As a result, sub-Saharan Africa saw its economic growth fall from 4.6% in 2014 to 3.4% last year. Now the World Bank in a new flagship report (pdf) says this pain is not nearly over, with growth expected to recover only to 4.2% this year, hobbling the drive to cut poverty rates across the region.
In its Global Economic Prospects, Spillovers amid Weak Growth report, the development lender forecasts a perfect storm as a slowdown in the largest emerging markets—the BRICS— meets with lower commodity prices, decreasing growth in international trade and financial market volatilities.
“Disappointing growth again in the largest emerging markets, if combined with new financial stress, could sharply reduce global growth in 2016,” the report says.
“The simultaneous slowing of four of the largest emerging markets—Brazil, Russia, China and South Africa—poses the risk of spillover effects for the rest of the world economy.” The bank adds that ripples are expected to be the greatest from China’s continuing slowdown which roiled markets last year and has started off the year on the same note.
Only once before in the last 25 years— during the Great Recession of 2009— have all the countries in this much-watched bloc slowed down at the same time.
The bank forecasts that global growth will this year only recover to 2.9% after falling short of expectations in 2015 to only come in 2.4%.
With Africa increasingly integrated to world markets, we pick 10 highlights of the report linked to the continent’s prospects this year.
1| China retains the key
As Africa’s largest trading partner, Beijing was last year at the Forum on China-Africa Cooperation summit at pains to reassure the continent that its domestic rebalancing away towards consumption and services-led economy did not mean it was abandoning a long-term partner. But for several African exporters, who have ridden on demand from China for their oil and metals, the resulting plunge in commodity prices was a much more telling reality as revenues fell and market uncertainty hit their financing plans.
The World Bank says the effects of the Chinese slowdown could be sizeable and “have likely contributed to the ongoing slowdown” in sub-Saharan Africa.
Senegal president Macky Sall with Chinese counterpart Xi Jinping.
2 | But the West designed the lock
While foreign direct investment from China is increasing and could to an extent offset Africa’s pain from low commodity prices, the US and the Euro Area remain the largest source of FDI to the continent. Growth in these two areas is expected to stabilise the wider global economy, essentially dragging it up through their sheer size, and allowing for sub-Saharan Africa to get a grip on the volatility. As they say in these parts, you don’t call the crocodile names until you have safely crossed the river.
3 | More time for India, perhaps?
Conspicuously missing from the worry about a BRICS slowdown is India, whose economy is booming on the back of policy reforms that have reduced its vulnerability to changes in the global economy and attracted investors. In November in an interview with this publication, Carlos Lopes, the executive secretary of the UN Economic Commission for Africa argued that India, and not China, was actually of more FDI value to Africa. “We have to confront the public with new narratives. We have to also use them for our negotiations and dialogue with our friends. It is important for people to know that all the sound and buzz about China’s investments in Africa actually is very very misleading,” he said.
4 | Time Africa pulled itself up
The report recommends that the region would be less vulnerable to global winds if it builds investor confidence, including through policy reforms in tax and governance, strengthens its industrialisation drive and increases intra-regional trade. Fuels, ores and metals currently make up 60% of Africa’s exports, while only 16% are manufactured goods. Tax revenues remain low, especially when resources are factored out, leaving a lot of space for the continent to diversify its purse and better control outcomes.
Oil remains overrepresented in African exports
5| Little Respite for the Big Three
Hamstrung by low commodity prices, recovery in Nigeria and South Africa is expected to be modest. Nigeria, which saw economic growth fall three percentage points to 3.3% last year, will have to battle with policy clarity and energy deficiencies, in addition to a battle to get fiscal consolidation right and a weakened currency for the import-heavy economy. South Africa faces labour and social tensions, fuelling already high unemployment at 25%, while hard-hit Angola has taken to borrowing from multilateral lenders to make ends meet.
6 | Neither for East Africa
The last few years have been exciting for the region, as huge gas and oil finds fuelled hopes of a windfall. But the fall in commodity prices has meant that investments in extraction could encounter further delay in what is already a long process (conventional oil and gas discoveries can take up to 30-40 years to develop). This has imperilled economies such as Uganda which borrowed heavily on the strength of such finds, but has now had to push first oil projections to 2020 from this year. Mozambique has had to turn to the IMF, while Kenya and Tanzania are struggling to get their math right. By one count the number of on-land drilling rigs are down 40% from the first quarter 2014 peak. It could get bumpy.
7 | North Africa possibly on steroids
Following a turbulent post-Arab Spring period, the region has managed to stabilise, with growth in 2015 estimated to have been at 2.5%, the same as in 2014. The region could now get carried along by the expected emergence of Iran as a major oil exporter, given its main buyers are the large emerging economies of China and India, who are among those expected to lift growth in other developing countries. Indeed expansion in the key trading partner the Middle East is expected to accelerate to 5% until 2018 on the back of Iran’s recovery.
8| Balancing acts will continue
Rapidly widening current and fiscal deficits led many central banks to hit the panic button, as either export revenues fell, or infrastructure drives gobbled up the cash. Spending was cut, and monetary policy tightened as currencies crashed through the floor. Some of the response was rather robust, such as in Nigeria. This year promises to be no different, as authorities adopt cautious stances. But some will continue to sleep easier—more so the CFA franc countries where the peg to the euro has kept inflation law and economies predictable.
9| It’s not all about Oil and Ore
Countries such as Ivory Coast, Rwanda and Tanzania will continue to chalk up robust growth—because they have lower exposure to the commodity slowdown, and will continue to benefit from large-scale investment in infrastructure. But also, the prices of agricultural commodities fell much more moderately, and some such as tea and cocoa even gained. With adverse weather expected this year, suggesting output falls and thus higher prices, the often-underrated agricultural exporters will be forgive for being justifiably upbeat.
10| But it’s all about the Electricity
It is easy to single out oil as having hurt Nigeria most, but the actual culprit was the crippling electricity deficit, which hurt manufacturing hardest, making it costly to produce, while also ravaging output. South Africa’s prospects also depend heavily on fixing its electricity bottlenecks, while Botswana, Ghana, the Democratic Republic of Congo and Zambia have also found the going extremely hard. Keep the lights on, and all else will sit up, is the message.