The WOrld Bank has concluded that the pulse of sub-Sahara African economies is weak and slashed growth prospects for the year from 4.6 per cent seen in 2014 to 3.7 per cent on account of negative external factors such as low commodity prices.
However, Rwanda, Côte d’Ivoire, Ethiopia, Mozambique and Tanzania are exceptions as they are expected to post solid growth in 2015, despite experiencing sharply lower rates of expansion in their commodity exports mainly due to low global demand.
The latest figures are outlined in the World Bank’s new ‘Africa Pulse’, a biannual analysis of economic trends and the latest data on the continent.
At 3.7 per cent, the 2015 forecast remains below the robust 6.5 per cent growth in GDP that the region enjoyed between 2003 and 2008. It is also lower than the 4.5 per cent growth seen shortly after the global financial crisis from 2009-2014.
However, the report noted that, overall, growth in the continent is projected to pick up to 4.4 per cent in 2016, and further strengthen to 4.8 per cent in 2017.
External factors that are affecting Africa’s growth are mainly a result of the sharp drops in the price of oil and other commodities which led to the recent weakness in growth, says the report.
The analysis further explains that China’s economic slowdown and tightening global financial conditions are also weighing down on Africa’s economic performance; these external factors are compounded by local factors such as bottlenecks in electricity supply in many African countries.
Makhtar Diop, World Bank Group vice-president for Africa, said although the outlook appears negative, 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 Diop.
Experts note that sub-Saharan Africa’s rich natural resources have made it a net exporter of fuel, minerals and metals, and agricultural commodities, which account for nearly 75 per cent of the continent’s exports.
But the robust supplies of these commodities from the continent have recently been met with lower global demand which explains the decline of commodity prices across the board.
For instance, the drop in the prices of natural gas, iron ore, and coffee exceeded 25 per cent since June 2014, according to the report.
Africa is not a country but rather a set of countries and the report does well acknowledging that fact when it pointed out that the overall decline in growth in the region is nuanced with factors hampering growth varying among the different economies.
For example, in commodity exporters, especially oil producers such as Angola, Republic of Congo, Equatorial Guinea,and Nigeria, as well as producers of minerals and metals such as Botswana and Mauritania, the fall of prices is sharply affecting their growth.
In Ghana, South Africa and Zambia, domestic factors such as electricity supply constraints are further curtailing growth, while in Burundi and South Sudan threats from political instability and social tensions are heaving economic and social toll.
Despite the varied effects across the region, there are negative trends shared across the continent as observed by Punam Chuhan-Pole, World Bank Africa’s acting chief rconomist, and the Pulse report’s author.
According to Chuhan-Pole, the ongoing dramatic drop in commodity prices has put pressure on rising fiscal deficits, adding to the challenge in countries with depleted policy buffers.
“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.
Rwanda's positive outlook
The report was launched by video-conference and journalists across the continent followed from the press rooms of World Bank country offices in their respective countries.
Asked to comment on Rwanda’s growth prospects, Chuhan-Pole said the country is one of several, including Ivory Coast, Ethiopia, Mozambique and Tanzania, that are expected to sustain growth at around 7 per cent or more per year between 2015 and 2017.
Growth in these countries is expected to be spurred by large investments in energy and transport, consumer spending and investment in the natural resources sector.
However, to safeguard this outlook, Rwanda is being urged to embark on structural reforms to alleviate domestic impediments to growth.
“Investments in new energy capacity, attention to drought and its effects on hydropower and renewed focus on encouraging private investment will help build resilience in the power sector,” Chuhan-Pole said.
Another general advice to the continent was the need for government to boost local revenues through taxese.
However, at a time when governments are borrowing heavily to support their intensive investment in infrastructure projects, Chuhan-Pole urged improvement of efficiency of public expenditures to create fiscal space in their budget.
She called on governments to borrow cautiously and maximise investments in areas with the highest production potential to not only drive growth but also positively impact lives to reduce poverty levels.
In yet another positive review, Rwanda was cited and commended for maintaining low risk ratings. But, as a precautionary note, the report said the dramatic spikes in debt service obligations at the time of bond repayment signal the potential risk of liquidity pressures in the future.
Rwanda successfully issued a $400 million Eurobond in 2013 to finance projects seen as crucial in efforts to sustain the current growth. The bond’s maturity date is May 2023.
The money raised from the bond, which was oversubscribed by international investors, was in part, invested in the construction of a state of the art convention centre to tap into conference tourism, a booming sector; the centre is on track to be completed sometime next year.
More of the bond money was invested to capitalise RwandAir, the national career, to connect Rwanda to more countries in a bid to widen tourism scope as well as export destinations; as result, RwandAir has recently increased its routes to 18 destinations in 12 countries.
Bosco Mukombozi Karake, a Kigali-based certified public accountant, argues that when international investors invested in Rwanda’s 10-year bond, worth $400 million, it signaled their confidence in the country’s economic future.
That confidence will be needed even more in coming months after Punam and her colleagues at World Bank, in reaction to a question, noted that Sub-Saharan Africa is likely to experience capital flight as investors take their dollars to the US economy whose growth is in renaissance.
“Investors will move but not all of them because African countries like Rwanda still have what they (investors) are looking for such as macro-economic stability and strong growth that can support good returns on investment,” Punam Chuhan-Pole said.
Rwanda’s economy grew by 7.6 per cent and 7 per cent in the first and second quarters of the year, respectively, a trend that central bank governor John Rwangombwa said is likely to be maintained in the third quarter which ended last month, when figures are released.