 |
| Photo:Courtesy |
The October issue of
the Africa Pulse report, a publication of the World Bank that highlights the
state of economic growth in Sub-Saharan Africa (SSA), reveals that the region’s
rate of economic growth for 2016 will be 1.6%. This is the lowest rate of
economic growth that SSA would have registered for the last two decades and it
is in fact lower than the previously forecasted 3% expansion of the real Gross
Domestic Product (GDP) for 2016.
In addition, the 1.6%
rate of economic growth is lower than that of the Emerging Markets &
Developing Economies (EMDEs) which is projected to be 3.5% and the global
growth rate of 2.3%. It marginally surpasses that of the advanced economies by
a mere +0.1. However, it is expected that SSA’s economic growth rate will pick
up in 2017 heading into the medium term. The World Bank analysts forecast that
SSA will register an economic growth rate of 2.9% in 2017 and 3.6% in 2018.
Several factors have
been identified as the causes of the slump in the economic growth for SSA in
2016. They include the incidence of low commodity prices in the global market,
tight financial conditions in USA and the Euro Area that have occasioned a
reduction of capital flows into the region, policy uncertainty in the domestic
economies, droughts, political and security threats and the slowing down of the
growth of China’s economy.
One startling fact
documented in the report is the nature of economic growth exhibited by the
respective economies of the states that make up SSA; some of the economies are
registering relatively high rates of economic growth, a few are growing a bit
slowly and others are experiencing a continuous contraction of their GDP.
The economies of
Ethiopia, Rwanda, Tanzania, Cote d’Ivoire and Senegal are projected to register
economic growth rates of above 6%. The performance of these economies has been
attributed to several factors key among them; good monetary and fiscal
policies, better business regulating environments, the diverse structure of the
commodities exported and more effective public institutions.
On a general scale,
this has an implication that the other countries’ economies that are playing
catch-up with the aforementioned ones, and those whose economic performance is
dwindling are operating in the middle or at the extreme end of the continuum
that is an aggregation of the stated metrics. This is in fact where the
divergence stems from and paints a picture of a continent fantasizing with the
aspect of Africa Rising.
Primary Causes of the
Economic Slump
Considering the general
economic performance of SSA, there are more doubts than hopes in light of the
envisaged economic resurgence of the region in the second decade of the 21st
century. Externally, the continued internationalization of capital and the
global integration of different regional economies cannot be disregarded or
disputed for that matter. The global financial crisis of 2008 and the Eurozone
Crisis thereafter are deeply interlinked to the decline in the economic growth
rate of SSA. As a direct result of this, the financial resources funneled to
the SSA region have significantly decreased and this is especially with regards
to the flow of capital to the region. The aftermath of the crises has resulted
in the crafting and drafting of stricter monetary and fiscal policies in the
USA and in Europe. The USA and the Euro Area are still gravitating towards the
equilibrium hence the effects of the adjustments.
One of the primary
causes of this decline in the economic growth of SSA has been the decreasing
commodity prices in the global market. This has greatly affected the
commodities from SSA that are exported to Europe, the Americas and Asia. The commodities that have largely been
affected are oil and the minerals. The increase in the supply of oil has
resulted in low prices of the product and this has seriously dented the African
economies that are dependent on it. The economies dependent on the minerals
have also experienced the economic misfortunes in the world market.
To a larger extent,
Nigeria and South Africa which make up 50% of the GDP of SSA, experienced
near-recession situations in their respective second quarters. Nigeria chiefly
depends on oil while South Africa’s economy is largely fueled by the revenues
realized from the minerals. Other countries such as Botswana, Angola, Chad, and
the Democratic Republic of Congo among others have suffered from this.
Sustainability of the
Growth Momentum
Before the economic
slump that began in 2015, SSA had registered an average economic growth rate of
approximately 5% per year for over ten years. The paradox from the sustained
economic growth rate was the failure to cut on the levels of poverty and
unemployment in the region. This is perhaps a pointer that the growth was not
anchored on feasible policy frameworks.
The sustainability of
the economic growth of SSA is a mirage basing on the prevailing form and nature
of the economic model of the region. An interesting fact is the growth and
expansion of the service sector compared to the manufacturing sector whose
growth is relatively slower. The other regions of the world, in the course of
their economic growth and subsequent structural transformation, the
manufacturing sectors were developed into the largest contributors of their
GDPs. This should trigger economic curiosity in light of the different nature
of SSA’s growth trajectory.
Logically, a thriving
manufacturing sector creates the economic momentum through the backward and
forward linkages with the other sectors within the economy. The failure to heavily
invest in the manufacturing sector has led to the failure to diversify the
exported commodities.
The doubts in the
sustainability of the growth momentum of SSA can be traced to the peripheral
role played by the agricultural sector. The sector contributes 30% of the
region’s GDP and 2/3 (67%) of the region’s labour force but its total factor
productivity is very low compared to the other regions of the world. To
effectively reduce the poverty and unemployment levels in SSA, special
attention must be paid to the agricultural sector. Its development through the
establishment of agro-based industries will further create other external
industrial linkages which will set up a stronger foundation for the manufacturing
sector and a vibrant service sector.
Back On Track:
Fundamental Policy Prescriptions
The future of SSA is
bright but the formulated policies need to reflect the current situation and
address the reality on the ground. The economies of SSA have to diversify the
commodities that they export. This entails value addition of the products and
even diversification of the markets in which the commodities are exported to.
This will reduce the uncertainties associated with the fluctuations of the
commodity prices.
The development of the
agricultural sector should be prioritized given its contribution to the
region’s GDP and the labour force in the sector. The policies formulated ought
to focus on the sector’s commercialization, leveraging on technology and
special programmes tailor-made to harness the productivity of the smallholder
farmers.
More investments should
be made in the manufacturing sector. The investments in this sector should
mirror the on-going investments in infrastructure.
Above all, the SSA
countries must create friendly business environments that encourage, promote
and attract investors both domestically and externally. Intertwined to this is
the need to ensure that there is a lot of efficiency in the public sector such
as a reduction in the red tapes and the levels of corruption.
Addressing uniformly
the challenge of economic growth divergence is a challenge in itself as
different SSA states have a lot of dynamism as far as economic management is
concerned. But the divergence is a cause to worry about as it may lead to cases
of immigration which often precipitate the xenophobic effects. This is why the
growth trajectory of SSA ought to be consistent and in due course sustainable.
No comments:
Post a Comment