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Growth prospects in Sub-Saharan Africa

World Cement,

In the four years to mid-2008, commodity prices increased 300%. Copper and uranium quadrupled; oil tripled, rising to US$ 147/bbl in July 2008; gold and coal also doubled. The net effect for Sub-Saharan Africa was years of robust economic growth, which rose to a 30 year high of 6.3% in 2007. Then came the financial crisis, which pushed the world economy into a cyclical downturn.

Weak economic activity in advanced industrialised and some emerging market nations has dragged down commodity prices both oil and non-oil, dampened tourism revenues, aid inflows, remittances and foreign direct investment. Although the rate of deceleration in global growth has moderated, the near-term consequences of the crisis for Africa are significant.

Growth forecast
IHS Global Insight’s forecast of real GDP growth rate at -0.2% in 2009 will be the slowest for Sub-Saharan Africa since 1993, and 2010 will only show a slight rebound. With the region heavily dependent on the export of primary commodities, the anaemic global economy will result in a deterioration of trade balances as well as government revenues. Aid flows from ailing advanced economies will suffer, as will remittances. According to a recent UN report, remittances to Africa rose to around US$ 19 billion in 2007, accounting for some 2.5% of regional GDP and equal to the overseas development assistance received by the region. Although the region’s banks have little direct exposure to the global banking crisis, the indirect effects of anaemic economic growth and repatriation of funds by foreign parent banks is undermining the quality of their credit portfolios.

Trade balances are shrinking sharply. Like commodity prices, terms of trade have undergone large swings since 2008 and the region’s external position deteriorated as trade balances, particularly of net oil exporters, tumbled. Among the non-oil commodity exporters, major declines were significantly noticeable in the Central African Republic (timber and diamonds), Democratic Republic of Congo and Zambia (Copper), Gabon (Manganese) and tourism in Cape Verde, Senegal and some East African countries.

Capital inflows are declining. The region is experiencing sharp declines in foreign direct investment, pushing some of the currencies into a significant depreciation trend. External reserves also took a beating. From September 2008 to early 2009, Angola, Mauritius, Nigeria and Zambia lost more than 15% of their reserves.

Does this scenario spell doom for investment in the region? No. This is a global recession and no region is spared. As the world economy recovers, so will Africa. The growth momentum, which reached a 30 year high in 2007, will likely return in the medium to long term and consumer price inflation, though still on the high side, will likely average in single digits in 2010. Recovery in the world economy will help a rebound in Africa’s investment environment and hence its growth momentum.

To read the full report by Karanta Kalley, IHS Global Insight, please see the August 2009 issue of World Cement.

Author: Karanta Kalley is the Regional Managing Director for the Africa Group of HIS Global Insight.

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