SA’s political uncertainty slows growth

UN report predicts GDP up 2.3%

A KEY UN report says growth in southern Africa and South Africa is projected to improve but remain modest and, what is becoming a recurring theme, “political uncertainty” is likely to keep investment subdued.

The UN World Economic Situation and Prospects 2018 Report, released this week, says that following growth of 1.2% in 2017, gross domestic product (GDP) is projected to expand by 2.3% in 2018 and 2.5% in 2019 in southern Africa.

In South Africa, net exports will rebound with a “moderate recovery” in the agriculture and mining sectors, the report says.

“Borrowing costs have risen after the country’s credit rating was downgraded to sub-investment level in April 2017 due to heightened political uncertainty.”

An infestation of armyworm may pose a substantial risk to crops in the region and possibly beyond, says the UN report.

“Additionally, investment is expected to remain subdued mainly due to political uncertainties, further constrained by a lack of reforms, an unfavourable institutional environment and slowly addressed infrastructure gaps.”

For Zimbabwe, “high debt levels, structural and institutional constraints, lack of liquidity, and a challenging environment as the country undergoes political transition, will continue to constrain the economy”, the UN says.

Against this backdrop, Africa overall seems to be in better shape than its southern part and is expected to see a recovery in aggregate GDP growth, with a projected expansion of 3.5% in 2018 and 3.7% in 2019. That is up from 3% in 2017.

For Africa, “strengthening external demand and a continued firming of global commodity prices will ease fiscal and external pressures.

However, significant fiscal adjustments lie ahead for many commodity exporters, constraining the pace of rebound in countries of this region”, the report says.

It cautions that considerable policy challenges lie ahead for Africa.

“Large fiscal deficits, growing interest payments and valuation changes from exchange rate depreciation are contributing to a rapid accumulation of debt, especially in oil-exporting countries,” says the UN.

The report notes substantial differences in growth prospects among the five African sub-regions.

East Africa will remain the fastest-growing sub-region, with aggregate GDP projected to grow by about 6% in 2018 and 2019, facilitated by large infrastructure investments and the expansion of domestic markets.

Growth in North Africa is projected to stabilise at 4.1% in 2018 and 2019, after reaching 4.8% in 2017, because of firmer commodity prices, further improvement in the security situation and continuing economic recovery in Europe.

West Africa will continue its growth recovery, from 2.4% in 2017 to 3.3% in 2018, as oil prices rise and oil production gradually increases in Nigeria, easing fiscal and foreign exchange pressures.

Several other West African countries continue on a path of strong growth, including Ivory Coast, Ghana and Senegal, supported by robust spending on infrastructure, higher investor confidence and improvements in the business climate.

The outlook for the overall global economy is also rosier than that for southern Africa.

An upturn in the global economy – now growing by about 3% – paves the way to reorient policy towards longer-term issues such as addressing climate change, tackling existing inequalities and removing institutional obstacles to development, says the report. –