According to the new World Bank report on Africa's economy - Africa's Pulse - released on Wednesday 18 April 2012, economic growth in Sub-Saharan Africa (SSA) remains strong and is poised for lift-off after growing at 4.9 percent in 2011, just shy of the pre-crisis average of 5 percent. Excluding South Africa, which accounts for over a third of the region's GDP, growth in the rest of the region was 5.9 percent, making it one of the fastest growing developing regions.
This latest report complements the Ease of Doing Business in Africa report released by the World Bank in conjunction with IFC recently commending Sub-Saharan African countries for implementing trade and structural reforms that enabled doing business easier in the region and thus attracting investments. With this performance SSA is well on its turf to become the market giant in the 21st century. The World Bank's latest poverty estimates show that the number of people in poverty in Africa has declined - a first for the region. Over a third of countries in the region attained growth rates of at least 6 percent, with another 40 percent growing between 4 - 6 percent. Among fast-growing economies in 2011 were resource-rich countries such as Ghana, Mozambique and Nigeria as well as other economies such as Rwanda and Ethiopia, all posting growth rates of at least 7 percent in 2011.
Notwithstanding the increased global financial market volatility, risk aversion and massive equity market sell-offs that characterized the latter half of 2011, overall capital flows to Sub-Saharan Africa rose by $8 billion in 2011 to $48.2 billion. Foreign direct investment, which accounts for about 77 percent of all capital flows to the region, contributed to about 83 percent of the increase. Recent foreign direct investment to the region has been spurred by increased global competition for natural resources (for example, net FDI inflows to Zambia increased by 31.2 percent from US$0.63 billion in 2010 to US$0.83 billion in 2011), improvements in the region’s regulatory environment, higher commodity prices, robust economic growth and a fast rising middle class. The region is increasingly being recognized as an investment destination, including from private equity investors
The Pulse, sub-titled 'an analysis of issues shaping Africa's economic future' in its fifth volume, also points to the challenges faced by the region. According to Obiageli ‘Oby’ Ezekwesili, The World Bank’s Vice President for Africa, and a former Nigerian Minister of Mineral Resources, The famine in the Horn of Africa last year and the drought in the Sahel this year are cruel reminders that Africa, the continent that contributed the least to greenhouse gas emissions, is likely to be the most hurt by climate change. Furthermore, growth has not yet translated to productive employment, especially for the 70-80 percent of the labor force working in the informal sector. Finally, despite progress on macroeconomic policy, Africa is challenged by weak governance, reflected not only in the large number of fragile states, but in the difficulty of implementing pro-poor reforms, such as appropriately targeting subsidies and social spending. But the palpable dynamism on the continent, itself fueled by economic growth, innovations in technology and the openness and spirit of Africa’s young people, makes me confident that together, we can meet these challenges, says Ezekwesili.
On the outlook for SSA, despite the weak demand from Europe which will impact the region’s exports, the increasing diversification of trading partners should help cushion the effects of a slowdown in Europe. Further, easing inflationary pressures in several countries, still high commodity prices, ongoing investments in new mineral discoveries, and the peace dividend in Côte d’Ivoire should underpin an acceleration in GDP. Growth is projected to rise to 5.2 percent in 2012, with a pick up to 5.6 percent in 2013 as the global economy rebounds. Excluding South Africa, growth is expected to reach 6.4 percent in 2012 before settling at 6.6 percent in 2013. Risks to these forecasts remain tilted on the downside, as the global economy still remains fragile even though there are signs of strengthening outside of Europe. The effects for individual Sub-Saharan Africa countries will, however, differ depending on their exposure to European markets and the composition of exports. A related risk to the slowing of the global economy is a fall in commodity prices. This is all the more likely given the projected slower growth forecasts for China. With commodities accounting for over 70 percent of merchandise exports, Sub-Saharan Africa remains vulnerable to declines in commodity prices. World Bank simulations suggest that if commodity prices were to fall as they did in the 2008/09 crisis, fiscal balances in Sub-Saharan Africa could deteriorate by as much as 4 percentage points, with oil and metal exporters being worst affected.
Food insecurity is still a worry. Africa’s Pulse reports that the Sahel region of West Africa is facing a severe food security situation. Less-than-average rainfall, poor distribution, and displaced families due to conflict have left more than 13-15 million people across Niger, Mali, Burkina Faso, Chad and Mauritania vulnerable. The report also notes that Fuel subsidies benefit the rich more than the poor. It devotes a special section to fuel price subsidies in Africa, reporting that in 2010-11 over half of all African countries had some subsidy in place for fuel products, and these in turn cost on average, 1.4 percent of GDP in public revenues. Of the 25 countries with fuel subsidies, the fiscal cost of subsidies in six countries—primarily oil exporters—was at or above 2 percent of GDP in 2011. The fiscal cost in oil exporters was almost two-and-a-half times the levels observed for oil importers. These costs have grown sharply in some countries in recent years.
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