Sub-Saharan Africa’s growth will slow in 2015 to 4.0 percent from 4.5 percent in 2014, according to World Bank projections released Monday.
This downturn largely reflects the fall in the prices of oil and other commodities, notes Africa’s Pulse, a twice-yearly World Bank Group analysis of the issues shaping Africa’s economic prospects released yesterday at the start of the World Bank Group’s 2015 Spring Meetings, which will draw the world’s finance and development ministers to Washington, DC, for talks on the state of the global economy and international development.
According to the report, the 2015 forecast is below the 4.4 percent average annual growth rate of the past two decades, and well short of Africa’s peak growth rates of 6.4 percent in 2002-08. Excluding South Africa, the average growth for the rest of Sub-Saharan Africa is forecast to be around 4.7 percent.
“Despite strong headwinds and new challenges, Sub-Saharan Africa is still experiencing growth. And with challenges come opportunities,” says Makhtar Diop, World Bank Vice President for Africa. “The end of the commodity super-cycle has provided a window of opportunity to push ahead with the next wave of structural reforms and make Africa’s growth more effective at reducing poverty.”
Sub-Saharan Africa where Liberia also situated, is a net exporter of primary commodities. Oil is the most important commodity traded in the region, followed by gold and natural gas.
Over ninety percent of the total exports of eight major oil-exporting countries come from the three biggest exports of each country, which represent nearly 30 percent of their GDP. But the recent price declines are not confined to oil, and Africa’s Pulse reveals that the prices of other commodities are now more closely correlated both with oil prices and with one-another. As a result, terms of trade are declining widely among most countries in the region. The 36 African countries with expected terms-of-trade deterioration are home to 80 percent of the population and 70 percent of the economic activity in the region.
That said, the continent’s huge economic diversity is also mirrored in the impact of commodity price declines – even among oil producers, according to a press release issued by the Bank.
In Nigeria, for example, although the economy will suffer this year, growth is expected to rebound in 2016 and beyond, driven by a relatively diversified economy, and a buoyant services sector. Low oil prices will continue to weigh down on prospects of less diversified oil exporters such as Angola and Equatorial Guinea. In several oil-importing countries, such as Cote d’Ivoire, Kenya and Senegal, growth is expected to remain strong. In Ghana, still high inflation and fiscal consolidation will weigh on growth. In South Africa, growth continues to be curtailed by problems in the electricity sector.
Foreign direct investment inflows were subdued in 2014, reflecting slower growth in emerging markets and declining commodity prices. African countries continue to tap international bond markets to finance infrastructure projects: Cote d’Ivoire returned to the market this February; and Ethiopia had a debut issue in December 2014. Although debt burdens remain generally manageable, debt-to-GDP ratios for countries with increased bond market access have picked up in recent years. Uncertainty about future global monetary conditions is an additional reason for caution.
“As previously forecast, external tailwinds have turned to headwinds for Africa’s development. It is in these challenging times that the region can and must show that it has come of age, and can sustain economic and social progress on its own strength. For starters, recent gains for the poorest Africans must be protected in those countries where fiscal and exchange rate adjustments are needed.” says Francisco Ferreira, the World Bank’s Chief Economist for Africa.