African growth spurt to slow: IMF
JOHANNESBURG — After enjoying boom years, sub-saharan Africa’s commodity exporting economies face a grim 2015 as China’s once-voracious appetite for raw materials wanes, the IMF warned Tuesday.
Activity may gather pace next year, however, as oil prices recover, the International Monetary Fund said in its closely watched World Economic Outlook report.
The Washington-based lender lowered its growth forecast for this year to 3.7 percent, 50 basis points down from its projection in June, and compared with 4.6 percent expansion recorded in 2014.
“The slowdown in 2015 is primarily driven by the repercussions of declining commodity prices, particularly those for oil, as well as lower demand from China — the largest single trade partner of sub-saharan Africa,” the Fund said.
The World Bank’s new Africa Pulse, the bi-yearly analysis of economic trends and the latest data on the continent, shows that the 2015 forecast remains below the 6,5 percent growth in GDP which the region sustained in 2003-2008.
More broadly, domestic demand through investment, private consumption and government spending will support growth in the region,” the report says.
During a conference call on the findings contained in the report, Africa Pulse team leader Punam Chuhan-pole said countries in the region face challenges arising from a huge wage bill and widening budget deficit.
“In many countries we have seen rising wage bills and there is need to make an effort to control that. Otherwise you are going to have widening deficit and you are not going to have resources to spend on other potential services such as infrastructure development,” said Ms Chuhan-pole.
The report says that policy buffers are low in several countries, constraining the response to the current environment and underscoring the need for African countries to improve domestic resource mobilisation and enhance public expenditure efficiency. Sub- Saharan Africa’s rich natural resources have made it a net exporter of fuel, minerals and metals and agricultural commodities.
Robust supplies and lower global demand have accounted for the decline of commodity prices across the board. For instance, the report says, the drop in the prices of natural gas, iron ore and coffee exceeded 25 percent since June 2014. Africa Pulse says growth in Sub-saharan Africa will be tested as new shocks occur in the global economic environment underscoring the need for governments to embark on structural reforms to alleviate domestic impediments to growth.
“Investments in new energy capacity, attention to drought and its effects on hydropower, reform of state-owned distribution companies and renewed focus on encouraging private investment will help build resilience in the power sector,” the report says.
Growth in the region’s biggest oil exporters, Nigeria and Angola, is expected to slow sharply when compared to last year, it said.
The IMF said growth for the sub-saharan region was expected to pick up in 2016 to 4.3 percent, however, as external demand and oil prices recovered.
Africa’s most advanced economy, South Africa, was projected to show growth of less than 1.5 percent in 2015 and 2016 due to poor electricity supply and high unemployment.
The effect of plunging commodity prices has already led mining companies in countries such as South Africa and Zambia to slash workforces, shut operations and reduce capacity.
Zambia, which relies on copper exports for 70 percent of its foreign earnings, has seen the value of its currency, the kwacha, fall by nearly half against the dollar so far this year.
In contrast, the IMF predicted Ivory Coast, Democratic Republic of the Congo, Ethiopia, Mozambique and Tanzania would record growth of seven percent or more this year and next. Sub-saharan African nations had increased their fiscal deficits since the start of the global financial crisis as wages rose and revenues fell, the World Bank said. “To withstand new shocks, governments in the region should improve the efficiency of public expenditures, such as prioritising key investments, and strengthen tax administration to create fiscal space in their budgets,” Chuhan-pole said.
Meanwhile, Business confidence in South Africa has dipped to its lowest level since the end of apartheid on the back of an unstable currency and lower commodity prices, a survey showed Tuesday.
The South African Chamber of Commerce and Industry’s Business Confidence Index in September fell to the lowest level since 1993, a year before the end of apartheid.
Last month’s business confidence index “is the lowest level recorded since July 1993 and is a 22-year low,” said the group.
South Africa is Africa’s most developed and was long the continent’s economic powerhouse, but last year it lost its number one spot on the continent to Nigeria.
The SA economy is plagued by slow growth of less than 2 percent, a weak rand, inadequate and unreliable electricity supplies and high unemployment.
“The financial climate remains tight compared to a year ago with instability (of the rand and precious metals),” said the chamber in its monthly survey.
It echoed the IMF’S warning that the prospects of African economies, particularly those heavily reliant on commodity exports risk becoming “desperate”. — AFP
SA’S growth is projected to be below 1.5 percent both this year and next year, according to the IMF.