Real growth in Sub-Saharan Africa will accelerate to 5.4% in 2011, up from a lacklustre 2.0% in 2009 and an estimated 4.6% last year. The growth momentum that began in 2010 will remain on track through this year as the region’s exports rise on the back of surging world commodity prices. In South Africa, the region’s largest economy, there are signs that recovery is tentatively set to gain momentum through 2011 and business confidence is showing a significant increase. Improved real output performance in Nigeria and Angola, both oil majors and the region’s second and third largest economies, respectively, are clear indications of economic rebound in Sub-Saharan Africa.
The non-hydrocarbon sectors, particularly in infrastructure, will show some dynamism, as the world economy recovers in both the near and medium-terms. For some of the non-oil exporters, significant contributions to GDP will come from metals, wholesale and retail trade, agriculture, forestry and fisheries. Performance in these sectors should be relatively strong. Ongoing rebuilding of infrastructure and demand for residential and commercial space, as well as roads and railways, will drive growth in the construction sector. Other service sectors, including telecoms, banking and tourism, will likely show some dynamism in the medium-term. Tourism will remain a driver, particularly in eastern and southern Africa, barring serious fallouts from the Eurozone debt crisis. Nevertheless, the governments will need to invest money in rebuilding transport and communications infrastructure and, in the case of newcomers, training local personnel for the industry’s needs. In countries such as Angola and other war-torn areas where the industry is in its early days, a strong effort to improve tourism and hospitality, as well as the countries’ physical infrastructure, will provide a strong foundation for future growth in this sector.
Weak infrastructure will be a drag on the region’s potential in 2011, despite serious attempts to rectify this situation in many of the region’s economies. If the inflow of foreign direct investment into Sub-Saharan Africa falls significantly below IHS Global Insight’s baseline forecast, the result will be a dampening of longer-term growth prospects for the region. Only in comparatively scattered pockets of the continent do utility, transportation and communication networks exist that are adequately developed to support a ‘take-off’ phase in which complementary segments of economic activity achieve a mutually beneficial symbiosis. Much of Africa’s untapped potential (i.e., in agriculture) is literally inaccessible because producers do not have a feasible way to send their goods to the market.
Inflation and the threat to monetary policy
Inflation will remain a key policy challenge in 2011. The rate of inflation remains in single digits, but inflationary pressures have intensified in recent months as food and energy prices continue to rise. The risk to near-term inflation is tilting on the downside, as commodity prices continue to rise sharply into 2011. While such a scenario would allow countries with large export revenues greater space for fiscal expansion, it would complicate the implementation of monetary and fiscal stimuli to sustain the growth momentum in those countries of the region not endowed with such resources.
Monetary policy easing experienced during most of last year will likely come under threat in 2011 as high energy and food prices exacerbate inflationary pressures. In the region as a whole, the future monetary stance will be greatly influenced by movements in the currencies, global commodity price movements (particularly food and energy), and underlying inflation trends, as influenced by labour-market demands and company pricing, which could influence inflation expectations.
Developments in global commodity markets will continue to dictate the macroeconomic outlook for Sub-Saharan Africa in the medium and long-terms. Commodity-price swings have always been a significant factor in the determination of economic growth in the region. Although the share of commodities in world trade has declined, they continue to dominate trade in Sub-Saharan Africa. Exports of primary commodities average more than 90% of total exports across the region. Nigeria, Ghana, Côte d’Ivoire, the Democratic Republic of Congo, Angola and Zambia are examples. One way to minimise such dependency in the outer years is to diversify the export base. The chances for such diversification in the short to medium-term are low, and therefore the risk, although moderating, remains high. In South Africa, gold, metals and metal products, and other minerals account for 57% of export revenues. Although such data indicate that the region’s economic powerhouse is not as dependent on the export of raw commodities as other countries in the region, the statistic is large enough to make South Africa susceptible to the volatile swings in commodity prices in the medium-term. For the region as a whole, a major cyclical downturn in the world economy would weaken tourism and demand for both oil and non-oil commodities, with negative consequences for growth and external balances. Similarly, a severe, political crisis in any of the region’s major economies could dampen investment and raise the risk of slower growth throughout the regional economy.
A slowdown in the pace of reform would constrain medium to long-term growth for Sub-Saharan Africa. Many of the countries in the region are fragile democracies, with some leaders only paying lip service to reform. Under this scenario, reform programmes that are perceived as anti-people will suffer, and the risk of a rise in economic populism will accelerate, further dampening prospects for growth.
Long-term economic progress will require medium-term political stability. Regional political developments and external issues related to the world economy will also have an impact on long-term GDP growth trends. Political instability, corruption, and economic mismanagement have always been a major constraint on the region’s development prospects. Since independence from colonial rule, poverty among the population has increased, nearing 70% in the case of Nigeria, the region’s second-largest economy. With the underlying causes of stagnation still in place in many countries – structural imbalances, poor infrastructure, overdependence on the oil sector, and political instability – economic growth will likely remain below expectations in the outer years unless these problems are properly resolved.
Debt relief will be a positive factor for the region’s growth environment. The external debt burden remains a constraint to poverty reduction in Africa. Debt forgiveness for 20 countries in the region will bode well for the growth environment in the medium to long-term. Since 2006, the World Bank, the International Monetary Fund, and the African Development Bank have delivered substantial debt relief to a number of African nations under the terms of the Multilateral Debt Relief Initiative (MDRI). The Paris Club of lending nations also agreed to a deal that saw two-thirds of Nigeria’s debt to them written off and the remainder subjected to a buyback arrangement with the country. The benefits that will accrue to relief recipients are clearly substantial, if not immediately tangible. Recipient governments are at varying stages of economic development and reform implementation, and the upside to relief may take longer to materialise in some cases. Debt relief does not in itself bridge the gap between Africa’s current resources and its long-term needs. The MDRI should simply be seen for what, in fact, it is: another important step forward on the road to economic recovery in Africa.
This is an abridged version of the full article published in the August 2011 issue of WORLD CEMENT. To read more download the issue now (subscribers only).
Read the article online at: https://www.worldcement.com/africa-middle-east/27072011/economic_progress_in_ssa-/