A collapse in commodity prices, emerging market volatility and the slowdown in China mean that sub-Saharan Africa is set to endure its slowest pace of economic growth since the global recession in 2009, according to the International Monetary Fund.
Over the past 15 years, Africa has boasted many of the world’s fastest expanding economies as the continent has been buoyed by China’s thirst for its natural resources, improved macroeconomic management and increased investor appetite for frontier markets. But in its regional economic outlook, the IMF has sharply revised downwards its forecast for gross domestic growth for sub-Saharan Africa this year from 4.5 per cent in April to 3.75 per cent, while warning that growth could contract further still.
It projects growth of 4.3 per cent in 2016. Last year, the region grew at 5 per cent.
Antoinette Sayeh, director of the Africa department at the IMF, said many African nations potentially faced a more challenging period than when the ripple effects of the global financial crisis hit the continent six years ago as they had less budgetary resources to navigate the storm.
“The oil exporters and commodity exporters . . . unfortunately some of those countries have eaten into their buffers more deeply in the last few years,” Ms Sayeh said. “Most countries are entering this period with significantly weaker fiscal and external positions than they had for the global financial crisis.”
In its report, the IMF warned that the pace of growth “will hardly be enough to create much-needed jobs to absorb the growing young population and take significant progress on poverty and inclusion”.
Much has been made in recent years of the potential of Africa’s fast-growing, youthful and rapidly urbanising population. But while poverty rates have dipped over the past 15 years, Africa continues to be blighted by the highest poverty levels in the world. Income inequality is also higher in sub-Saharan Africa than in all other regions except for Latin America and the Caribbean.
The continent is highly diverse and the IMF acknowledges that the outlook varies widely according to which country. The region’s eight oil exporters, which account for 50 per cent of its GDP, and its mining destinations are set to suffer the most while many low income countries will continue to grow at a “fast clip,” the fund said.
Among those most affected are Nigeria and Angola — the continent’s top two oil producers — and Guinea, South Africa, Sierra Leone and Zambia, all metal exporters. In contrast, countries including Mozambique, Ivory Coast, Democratic Republic of Congo, Ethiopia and Tanzania are forecast to register growth of 7 per cent or more for the year, the IMF said.
Overall, growth is still faster than many other regions of the world.
Ms Sayeh said government officials had to ensure their policy responses did not trail behind a potentially worsening situation, which would exacerbate their vulnerability. This includes governments reducing and being more targeted with their expenditure.
“Governments need to really try to strike a difficult balance between ambitions in terms of development needs that are very real . . . but keeping in mind also a real need to sustain the debt sustainability that has been hard arrived at,” Ms Sayeh said.
In recent years, an unprecedented number of African governments have used investors’ search for higher yields to tap into international capital markets, with the likes of Zambia, Ethiopia, Rwanda, Kenya, Ghana, Senegal, and Ivory Coast issuing foreign currency dominated sovereign bonds.
But financing is expected to become more challenging and expensive, particularly if the US Federal Reserve decides to raise interest rates later this year. While debt as a percentage of GDP remains below 40 per cent for sub-Saharan Africa, there are concerns that it could rise in some countries.
“With lower growth and higher interest rates, the positive dynamics that had so far put a relative lid on public debt increases could rapidly reverse in some countries,” the fund said.