Structured reforms, transformation, moving resources and production from raw exports to the service sectors, adequate power, trade reforms and regional integration is the surest way of absorbing external shocks the World Bank (WB) tells Africa.
The Bank says if the current decline in the prices of oil and commodities prices at the World market is anything to go by then African countries must take concrete initiatives towards diversifying their economies. This give their economies competitiveness to withstand the external shocks that comes with declining prices as being witnessed they were advised. ?Beyond macroeconomic policies, the report stresses the need across the region to boosting fundamentals such as lower transport costs, cheaper and more reliable power, and a more educated and skilled labor force will benefit all sectors as a solution?
This came to light when the Bank held a video conference for selected reporters from Ghana, Nigeria, Malawi, Zambia, South Africa, Kenya and Tanzania to launch the Africa?s Paulse report. A twice -yearly World Bank group analysis of the issues shaping Africa?s economies prospect. It also draws the world?s finance and development ministers to Washington, DC, for talks on the state of the global economy and international development.
African exports still dominated by primary commodities with
Sub-Saharan Africa being a net exporter. Oil is the most important commodity traded in the region, followed by gold and natural gas. Over ninety percent of the total exports of eight major oil-exporting countries come from the three biggest exports of each country, which represent nearly 30 percent of their GDP. But the recent price declines are not confined to oil and Africa s Pulse reveals that the prices of other commodities are now more closely correlated. As a result, terms of trade are declining widely among most countries in the region. These have forced many the Nigeria and Angola to revise in the figures downwards. Except South Africa and Kenya that has shown resilience Punam Chuhan-Pole, Lead Economist for Africa and co-author.
?Sub-Saharan Africa?s growth will slow in 2015 to 4.0 percent from 4.5 percent in 2014 it project? 2015 forecast is below the 4.4 percent average annual growth rate of the past two decades and well short of Africa?s peck growth rates of 6.4 percent in 2002-08. Excluding South Africa, the average growth for the rest of Sub-Saharan Africa is forecast to be around 4.7 percent? their paper noted. These are challenging times the team in DC told journalists. Another factor that also contributed to the current situation is the resurgence of ?military conflict? around the continent which has affected economic activities such as Boko Haram in Northern Nigeria and Al Shaba in East Africa which as highlighted the dangers of weak heath systems. They have called on African countries to strengthen the sector. This downturn largely reflects the fall in the prices of oil and other commodities, notes Africa s Pulse, a twice-yearly WB Group analysis shaping Africa s economic prospects notes.
The end of the commodity super-cycle has provided a window of opportunity to push ahead with the next wave of structural reforms and make Africa s growth more effective at reducing poverty. says Makhtar Diop, Vice President for Africa.
The 36 African countries with expected terms-of-trade deterioration are home to 80 percent of the population and 70 percent of the economic activity in the region. That said, the continent s huge economic diversity is also mirrored in the impact of commodity price declines even among oil producers. In Nigeria, for example, although the economy will suffer this year, growth is expected to rebound in 2016 and beyond, driven by a relatively diversified economy. She has had to reduce the price of oil to $ 52 dollars a barrel.
Low oil prices will continue to weigh down on prospects of less diversified oil exporters such as Angola and Equatorial Guinea. In several oil-importing countries, such as Cote d Ivoire, Kenya and Senegal, growth is expected to remain strong. In Ghana, still high inflation and fiscal consolidation will weigh on growth. In South Africa, growth continues to be curtailed by problems in the electricity sector. Foreign direct investment inflows were subdued in 2014, reflecting slower growth in emerging markets and declining commodity prices. African countries continue to tap international bond markets to finance infrastructure projects: Cote d Ivoire returned to the market this February; and Ethiopia had a debut issue in December 2014.
As previously forecast, external tailwinds have turned to headwinds for Africa s development. It is in these challenging times that the region can and must show that it has come of age, and can sustain economic and social progress on its own strength. For starters, recent gains for the poorest Africans must be protected in those countries where fiscal and exchange rate adjustments are needed. Says Francisco Ferreira, the WBs Chief Economist.
Also, the Ebola outbreak in Guinea, Liberia, and Sierra Leone has highlighted preexisting weaknesses in the health systems of the three most affected countries, as well as others. Although substantial progress has been made against the Ebola epidemic, it remains premature to declare victory until there are zero cases left. In January a report estimated that the three hardest-hit countries (Guinea, Liberia and Sierra Leone) will face at least $1.6 billion in forgone economic growth in 2015, and social costs in terms of nutrition, health and education are equally severe. These countries benefit from a $1 billion in financing.
The fiscal policy stance is expected to remain tight throughout 2015 in most net oil-exporting countries across the region, as countries take measures to rein in spending in light of anticipated lower revenues. While capital expenditures are expected to bear the brunt of expenditure measures, recurrent expenditures, including fuel subsidies, will also be reduced. Despite these adjustments, fiscal deficits are likely to remain high. Fiscal deficits are also expected to remain elevated in net oil-importing countries.
Large fiscal deficits and inefficient government spending remain sources of vulnerability for many countries of the region. It is urgent that these countries strengthen their fiscal positions and fortify their resilience against external shocks, says Chuhan-Pole, the woman who did most of the talking and co-author of Africa s Pulse.