By Amos Kinuthia
The image of most developing nations and particularly African democracies has often been that synonymous with a perception of intense local conflicts, human rights violation, upheavals in their political regime and untamed corruption. It’s therefore a no-brainer why talk on headway made on the growth front is immediately drowned in negative sentiment on current and or previous regimes lack of political goodwill and a general laxity in moving things forward.
While the growth rate of the resource-rich African nations have been appreciably above global averages in the last 15 years, there can be no running away from the fact that African economies are facing a growth crisis which has certainly jeopardized the attainment of MDGs.
IMF and World Bank Africa growth forecasts for year 2015 have been revised downwards 1.25 percentage points to 4.5 percent for a second successive year, just a 0.1 percent above the average growth rate of the past two decades and far short of 6.4 percent peak growth rates experienced between 2002 and 2008.
The latest edition of World Bank Africa’s Pulse – the biennial analysis of issues impacting African economic development – reported that, 36 nations expect terms-of-trade and current economic situation to continue on a downward trend as commodity prices continue to weigh down on prospects of less diversified commodity exporters.
Economic growth has mainly been reliant on agriculture and natural resources both of which have seen steep price-dip in 2015 as a result of a sharper than expected tightening of global financing conditions and the impact of recent crude oil price collapse which amplified to other commodities as these are now more closely correlated with oil have made it more difficult for commodity dependent economies to balance their books. Bloomberg Commodity index, which tracks 20 commodity prices, plunged to 95.5 points in June, its lowest since 2002 further casting a bigger shadow on an already less encouraging outlook. A situation that has pushed commodity based companies like Glencore to consider closing mines and massive layoffs.
In order to revamp ailing economies already suffering from falling growth projections will be a tall order for a continent plagued by a scarcity of knowledgeable policy makers with a good grip on the mechanics around how to spur growth, near depleted natural resources which have seen prices plummet in the last several months, lack of political goodwill, cyclical and contagion effects of slowing global economy and perennial negative balance of trade.
Post colonial Africa, except for a few sections, has had to grapple with a litany of acute problems and mainly due to after-effects of colonial mismanagement of then abundant resources.
The growth outlook has been positive for most part in the last decade but the growing fear that developing nations neither have the resources nor the political mechanics to stimulate their otherwise struggling economies is valid if not real. A glance at what has happened in the four largest economies in Africa reveal some unique challenges African economies have had to cope with in the last decade or so.
Nigeria, the continent’s biggest economy while having to cope with adverse fuel falling prices that have resulted in a mark down on growth prospects by almost 2.5 percentage points has had to deal with negative effects of the persistent deadly hostilities showered by the extremist group, Boko Haram.
South Africa, the second largest has seen its growth prospects shrink on account of perennial mining strikes and spasmodic power outages.
The ‘Arab republic of Egypt’, the transcontinental nation with the most diversified economy fell into a political and economic abyss after the resignation of Hosni Mubarak in 2011 and hasn’t managed more than 2 percent GDP growth since. The Arab Uprising caused a lot of economic uncertainty to a country that was already in difficult economic straits. Tourism (a sector that accounted for 10 percent of country’s domestic product) and agriculture (directly and indirectly accounted for more than a quarter of Egypt’s GDP), took serious hits at a time when the population was getting upset with slowed economic and political reforms.
Hydrocarbons exports account for 98 percent of Algeria export revenue and 58 percent of all its government revenue and the crash in international oil prices have affected the nation’s macroeconomic balance substantially. The country is heavily dependent on its hydrocarbon sector (and exports) and expectations on a rebound of sector are still low. Growth has slowed down with World Bank projections for 2015 putting it at 2.8 percent, 1.5 percentage points lower than that achieved in 2014.
When IMF and World Bank met in Lima this month, the general consensus was that emerging markets – except for India – need swift and meaningful growth-enhancing structural reforms to allow them to return to anything like the growth rates of earlier years, despite being below double digits. As new opportunities sprout, the commodity super-cycle comes to a halt and some smart structural reforms are put in place; growth is expected to rebound in 2016 and beyond.