The issues shaping Africa’s economic prospects

Under the theme “Delivering on Africa’s Promise”, the 23rd World Economic Forum (WEF) on Africa will provide an important platform for regional and global leaders from business, government and civil society to deepen the continent’s integration agenda and renew commitment to a sustainable path of growth and development.

Continuing from African economic prospects: Where to from here, we explore the insights of  the IMF’s World Economic Outlook 2013 and the World Bank’s analysis of the issues shaping Africa’s economic prospects

Growth in 2014

6. A main driver of growth in 2014 will be the strengthening of activity in South Africa and other middle-income countries, predicated on improvements in the external environment. Similarly, some low-income and fragile countries are expected to do better, including those currently experiencing internal conflict.

7. Having moderated from 10% at the end of 2011 to less than 8% at the end of 2012, inflation in the region is expected a trend expected to drop to 7% in 2013, barring new fuel and food price shocks. The improvement in 2012 was particularly marked in eastern Africa, owing to monetary policy tightening and lower food prices associated with a recovery in local food production.

8. Recent discoveries of oil, natural gas, copper, and other strategic minerals, and the expansion of several mines or the building of new ones in Mozambique, Niger, Sierra Leone, and Zambia, together with better political and economic governance, are sustaining solid economic growth across the continent. Looking forward, it is expected that by 2020, only four or five countries in the region will not be involved in mineral exploitation of some kind.

Increased investment and capital

9. The World Bank says that given the considerable amounts of new mineral revenues coming on stream across the region, resource-rich African countries will consciously need to invest these new earnings in better health, education, and jobs, and less poverty for their people in order to maximize their national development prospects

10. Consumer spending, which accounts for more than 60% of Africa’s GDP, remained strong in 2012. This trend was driven by declining inflation, improved access to credit, lower interest rates, a rebound in agricultural incomes thanks to more favourable weather conditions in countries such as Guinea, Mauritania and Niger, and the steady remittance inflows (estimated at $31 billion in 2012 and 2011).

11. Increased investment flows are supporting the region’s growth performance. In 2012 net private capital flows to the region increased by 3.3% to a record $54.5 billion; and foreign direct investment inflows to the region increased by 5.5% in 2012 to $37.7 billion.

Export economies

12. Exports are also driving the continent’s growth and the traditional destination of these goods over the last decade is changing. Since 2000, the overall growth of sub-Saharan exports to emerging markets, including those of China, Brazil and India, and to countries in the region has surpassed that to developed markets. Total exports to Brazil, India and China were larger than to the EU market in 2011.

13. The external environment is the main source of risks to growth, particularly for middle income and mineral-exporting economies. Africa could be affected by two downside scenarios: the Euro area downside scenario (under which sub-Saharan Africa’s middle-income countries would be especially affected) and the reduction in investment in emerging market economies, including South Africa (which would weaken key commodity prices and hit mineral exporters). Countries that regulate the prices of food and fuel products would face budgetary pressure in the event of price shocks to these commodities.

What do you think are the risks to growth? Can recent discoveries of oil, natural gas, copper, and other strategic minerals sustain solid economic growth?

Watch this space for more insights into Africa’s economic performance and 2014 outlook…

David Okwara

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