Africa: Growth May Exceed Five percent in 2015-16, but ebola, terrorism and other risks pose concern

WASHINGTON DC: – Despite weaker than expected global growth and stable or declining commodity prices, African economies continue to expand at a moderately rapid pace, with regional GDP growth projected to strengthen to 5.2 percent yearly in 2015-16 from 4.6 percent in 2014, according to the World Bank’s new Africa’s Pulse, a twice-yearly analysis of the issues shaping Africa’s economic prospects.

Significant public investment in infrastructure, increased agricultural production and expanding services in African retail, telecoms, transportation, and finance, are expected to continue to boost growth in the region. This pick-up in growth is expected to occur in a context of lower commodity prices and lower foreign direct investment as a result of subdued global economic conditions.

Commodity prices remain highly significant to Africa’s outlook since, as the report notes, “primary commodities continue to account for three-quarters of Sub-Saharan Africa’s total goods exports, and the share of the region’s top five exports in total exports has climbed to 60 percent in 2013 from 41 percent in 1995.”

“Overall, Africa is forecast to remain one of the world’s three fastest growing regions and to maintain its impressive 20 years of continuous expansion” says Francisco Ferreira, the World Bank’s Chief Economist for Africa. “Downside risks that require enhanced preparedness include rising fiscal deficits in a number of countries; economic fallouts from the activities of terrorist groups such as Boko Haram and Al Shabaab and, most urgently, the onslaught of the Ebola epidemic in West Africa.”   

A World Bank study of the likely economic impact of Ebola, released last month, suggested that if the virus continues to spread in the three worst-affected countries, its economic impact could grow eight-fold, dealing a potentially catastrophic blow to the already fragile states of Guinea, Liberia and Sierra Leone. The World Bank Group is mobilizing a $400 million financing package for the countries hardest hit by the crisis.

Growth trends in Africa: growth slowed notably in South Africa, the region’s second largest economy, due to structural issues and low investor confidence.  The South African economy expanded a modest 1.0 percent year-on-year in the second quarter of 2014, its lowest growth rate since the 2009 financial crisis. By contrast, economic activity strengthened in Nigeria, the region’s largest economy.  GDP advanced 6.5 percent year-on-year in the second quarter, up from a 6.2 percent expansion in the first quarter.  

Growth also remained robust in many of the region’s low-income countries including notably Cote d’Ivoire, Ethiopia, Mozambique, and Tanzania. In Cote d’Ivoire, for example, a strong increase in cocoa production and rice output boosted agriculture growth and helped to sustain the country’s high growth.  Ethiopia’s robust growth continued to be supported by agriculture, as well, and by public investment, particularly in infrastructure.

Inflation rates edged up in a number of countries, but were more of a concern in the frontier market countries that also sustained large currency depreciations--notably Ghana. In a few cases, including Ghana and Zambia, the fiscal position remained weak due to increasing current expenditures, led by rising wage bills, and in some cases weaker revenues. Large fiscal deficits are reducing fiscal buffers and affecting these countries’ ability to respond to exogenous shocks.

Economic transformation will become more critical: in a special study of Africa’s patterns of structural transformation and poverty dynamics, Africa’s Pulse finds that the region is largely bypassing industrialization as a major driver of growth and jobs. Instead, the study says, extractive industries in the natural resources sector and a surging services industry are propelling Africa’s growth. Output shares of manufacturing and agriculture are declining across the region, although most workers – and almost 80% of the poor – still derive the bulk of their income from farming. 

“Nearly two decades of strong growth is transforming Africa’s economies, but the structural change is not what the world expected. The majority of Africa’s jobs continues to be in agriculture and is surging into services - but not into industry and manufacturing,” says Punam Chuhan-Pole, a World Bank Lead Economist for Africa and co-author of Africa’s Pulse. “The good news is that in Africa this growth in agriculture and the services sector has been more effective in reducing poverty than growth in industry. In the rest of the world, by contrast, industry and services have a larger impact on reducing poverty.”

Chuhan-Pole says between 1996 and 2011, per capita growth in services averaged 2.6 percent compared to 0.9 percent and 1.7 percent in agriculture and industry, respectively. She adds that the pattern of growth and economic transformation has implications for cutting poverty rates in Africa more significantly: Increasing agricultural productivity and boosting rural income diversification are important drivers of both structural transformation– by releasing labor from farms – and of poverty reduction.   Investments in rural public goods and services (e.g. education, health, rural roads, electricity and ICT), including in small towns, are fundamental tools for boosting rural economies and jobs.

Finally, as the new report notes, “while manufacturing may not provide a panacea, Africa can and should expand its manufacturing base, especially by boosting its fundamentals - business climate, macro-economic stability, reliable and affordable energy, lower transport costs and a more skilled labor force - which will benefit all sectors.”

How the World Bank Supports Africa: The Bank Group continued its strong commitment to Africa delivering $10.6 billion in new lending for 160 projects this fiscal year (FY14). These commitments included a new record of $10.2 billion in zero-interest credits and grants from the International Development Association (IDA), the World Bank’s fund for the poorest countries. This is the highest level of IDA delivery by any region in the World Bank’s history.

Editor: This is a World Bank news release dated October 7, 2014.