By Banque mondiale, US Africa News. Updated 2015-11-14

Makthat Diop

States must support growth in a sluggish global economy. This is the essence of the Africa Pulse Report issued on October 5th by Makhtar Diop, the World Bank’s Vice President for Africa.



The latest forecast from the World Bank estimates that economic growth has stalled in sub-Saharan Africa, due to a less favorable economic environment. Growth will reach 3.7% in 2015 instead of the 4.6% posted in 2014, the lowest growth rate since 2009. These are the findings from the latest edition of Africa's Pulse, a biannual publication of the World Bank which analyzes the economic outlook for sub-Saharan Africa. In 2015, growth in the region will be lower than the average of 6.5% recorded during the period 2003-2008. It will be even lower than the growth rate of 4.5% recorded after the global financial crisis between 2009 and 2014. For 2016, the World Bank forecasts a rebound in growth to 4.4% which would accelerate in 2017 to $ 4.8%.


This slowdown in growth was due to the sharp fall in oil and other raw materials. But Africa's Pulse points out other exogenous factors that have weighed on economic performance of Africa, such as the slowdown of the Chinese economy and the tightening of financial conditions globally. Inadequate electricity production in many African countries has accentuated these negative factors hindering economic growth in 2015.


“The end of the commodity super-cycle poses an opportunity for African countries to reinvigorate their reform efforts and thereby transform their economies and diversify sources of growth. Implementing the right policies to boost agricultural productivity, and reduce electricity costs while expanding access, will improve competitiveness and support the growth of light manufacturing," said Makhtar Diop, Vice-President of the World Bank in sub-Saharan Africa.


Africa's Pulse notes that several countries continue to show robust growth. Investments in energy and transport, household consumption, and investment in the extractive sector should stimulate growth in Côte d'Ivoire, Ethiopia, Mozambique, Rwanda and Tanzania. Growth in these countries is expected to reach at least 7% per year between 2015 and 2017.


Progress in poverty reduction


Africa's Pulse reveals that poverty reduction has happened faster than expected in sub-Saharan Africa. According to the World Bank, the prevalence of poverty in the continent has indeed diminished, from 56% in 1990 to 43% in 2012. During the same period, the African population has seen their living conditions improve, especially at the level of health (maternal and infant mortality) and schooling at the primary level, where inequalities based on gender have been greatly reduced.


Birth rates, still very high in Africa, however, have limited the impact of two decades of strong economic growth on the total number of poor people. African countries still lag behind other regions in terms of the Millennium Development Goals (MDGs). Thus, Africa did not achieve the target of halving the proportion of people living in extreme poverty between 1990 and 2015.


Declining world commodity prices


Thanks to its many natural resources, Africa is a net exporter of oil, minerals and metals, and agricultural commodities. These resources account for nearly three quarters of goods exported from the mainland. The general decline in commodity prices was due to an abundant supply and lower global demand. Africa's Pulse documents that since June 2014, prices for natural gas, iron ore, and coffee fell by over 25%.


The report stresses that the slowdown in growth is uneven across countries, and the factors affecting their growth also vary. The fall in commodity prices has weighed down the growth of exporting countries, particularly oil producers (Angola, Republic of Congo, Equatorial Guinea and Nigeria), and mineral extractors (Botswana and Mauritania). Internal factors such as inadequate power generation have dampened growth in Ghana, South Africa and Zambia. Political instability and social tensions weighed heavily on Burundi and South Sudan’s economies.


Africa's Pulse notes that the countries of the continent appear to have larger fiscal deficits in the aftermath of the global financial crisis. The widening of the deficit was due to swelling payrolls and lower revenues, particularly in oil-producing countries. In other countries, the rise in deficits is related to the focus on infrastructure spending. These growing deficits led to an increase in public debt in many countries of the region. Though overall the debt to GDP ratio remains under control, some countries are experiencing a worrying rise in their debt ratios.


"The brutal and continuous drop in prices of raw materials increased the budget deficits of States and represents an additional challenge for countries that already no longer have margins to absorb shocks," said Punam Chuhan-Pole, The World Bank’s Acting Chief Economist for Africa and the report’s author. "To withstand new shocks, governments in the region should improve the efficiency of public expenditures, such as prioritizing key investments, and strengthen tax administration to create fiscal space in their budgets.”


What reforms are envisaged?


Given the global economic environment, growth in sub-Saharan Africa will continue to be subjected to severe trials. This highlights the urgency for governments to undertake structural reforms to remove internal bottlenecks to growth. It will be necessary to invest in new electrical generation capacity, better manage droughts and their impacts on hydropower, modernize public distribution companies, and further encourage private enterprises to invest in order to enable the electricity sector to be more resilient. States can also increase their revenues and boost consent on raising and collecting taxes. They also need to at the same time improve the efficiency of their spending to free up fiscal room to maneuver.