Will we ever escape slow-growth grind?

IHAVE used the word “sobering” too often in reaction to the World Bank or the IMF’s reports on sub-Saharan Africa. Their latest reports have left me wondering if we’ll ever get out of this slow growth environment.

According to the World Bank’s Africa Pulse report, sub-Saharan Africa GDP averaged 3% in 2015, compared with 4.5% in 2014.

The last time the region’s GDP was this low was in 2009, following the global financial crisis, and it contrasts sharply with the robust 6.8% average annual growth it enjoyed between 2003 and 2008.

The main reason for the recent slow growth is falling commodity prices. Fuels, ore and metals account for more than 60% of the region’s exports, compared with 16% for manufactured goods and 10% for agricultural products.

Average growth in oilexporting countries is estimated to have slowed from 5.4% in 2014 to 2.9% in 2015. Non-energy mineral exporting countries such as South Africa, Botswana, Guinea, Zambia and Liberia also weakened significantly due to the fall in the price of copper, diamonds, iron ore and platinum.

As net exporters of commodities, sub-Saharan countries are vulnerable to drastic swings in the international prices of commodities produced by the region. As the World Bank report points out, the end of the commodity super-cycle has led to a sharp reduction in export proceeds and volumes, putting pressure on currencies in the region.

My reason for having a glass-half-empty view on Africa’s growth prospects is that I believe African countries need to diversify their economies so that when commodity prices fall, for example, other sectors can support their economies.

This transition will not be easy, but economies that have successfully made the transition from low-income to medium- and high-income status have typically experienced significant changes in their economic structures.

Furthermore, countries that produce and export more sophisticated products tend to grow faster.

Also, manufacturing and exports require demand, and global growth remains precarious.

Should the Brics GDP growth continue to be downgraded, for example, growth in other emerging and frontier markets could be curtailed by 1.3 to 1.5 percentage points in 2016.

The IMF projects global output of about 3.2% this year. A further slowdown in global growth also means that muchneeded capital flows to the region will decline further, as we have seen in recent years.

In 2015, Eurobond issuance totalled $9.2-billion (about R133-billion) compared with $12-billion in 2014, and monetary policy tightening in the US and concerns about emerging markets’ growth has led to further tightening of

Capital flows to the region will decline further

external financial conditions.

But before I become too negative, South Africa issued a $1.25-billion 10-year bond with a coupon of 4.875% last week, which was two times oversubscribed despite the gloomy economic outlook, the looming downgrade to subinvestment grade and political noise. The Treasury tapped into the international capital market to help finance its foreign-currency commitments over the medium term.

The successful issuance also goes to show that perhaps investors from mainly Europe and the US can see the wood for the trees. Its success is definitely an expression of investors’ confidence in South Africa’s sound macroeconomic framework and prudent fiscal management.

Leoka is an economist at Argon Asset Management