Over dependence on minerals stunt economic growth in Sub-Saharan Africa
> Mpho Tebele
Gaborone- The International Monetary Fund (IMF) has revised down the economic growth outlook for the sub- Saharan Africa region and advised that under the current environment, efforts to diversify growth away from extractive industries should take on renewed importance.
In its October 2015 Regional Economic Outlook for Sub-Saharan Africa, titled “Dealing with the gathering clouds” the region has weakened after more than a decade of solid growth, although this overall outlook masks considerable variation across the region.
The report notes that the most affected are economies that rely on commodity exports including the mineral rich Botswana and Namibia as a recent slump in rough diamond demand has affected government coffers.
Zambia’s economic activity is being held back by depressed copper prices, high interest rates, and severe electricity shortages.
In South Africa, regular electricity load shedding, job cuts in the steel and potentially in the mining sectors, and broader implications of low commodity prices, along with a tighter policy mix, continue to keep a lid on growth, projected to remain below 1½ percent in 2015–16.
Floods and erratic weather in Southern Africa are also reducing agricultural output in many countries, most notably in Malawi and Zimbabwe.
According to the SADC Secretariat, more than 27 million SADC citizens require food and non-food supplies following prolonged dry spells and floods which affected food production in the region.
Director of Food Agriculture and Natural Resources at the SADC Secretariat, Margret Nyirenda, disclosed this in the run-up to 35th SADC Summit of Heads of State and Government in Gaborone, Botswana in August.
“During the 2015/16 marketing year the number of vulnerable people swelled from 24.28 million to 27.41 million, representing a 13 percent increase,” Nyirenda told journalists ahead of the leaders’ meeting.
She said the 2014/15 season rainfall was generally poor in most parts of the region
“Some countries have been negatively affected by falling prices of their main commodity exports. Oil-exporting countries, including Nigeria and Angola, have been hit hard by falling revenues and the resulting fiscal adjustments, while middle-income countries such as Ghana, South Africa, and Zambia are also facing unfavourable conditions,” IMF stated in the report.
The Bretton Woods institution further noted that a combination of supply shocks (for example, curtailed electricity production in Ghana, South Africa, and Zambia), more difficult financing conditions in a context of large domestic imbalances (Ghana and Zambia), and weaker commodity prices (Botswana, South Africa, Zambia) are set to lower growth.
“Moreover, most commodity prices are projected to remain low, if not decline further, throughout 2016.
Such prospects have already triggered a scaling down of existing activities in some countries (Botswana, the Democratic Republic of Congo, Guinea, Sierra Leone, South Africa, and Zambia) or of new projects in others (Côte d’Ivoire).”
The IMF said the decline in commodity prices has been underpinned by the rapid and likely persistent decrease in global demand for raw materials, in some cases combined with higher supply (such as for oil or copper).
“Most importantly, China, the largest single trade partner of sub- Saharan Africa, is rebalancing its growth away from manufacturing, construction, and exports—where production inputs are highly skewed toward raw materials—toward the services sector and consumption,” the Fund said.
Against the backdrop of these global and domestic headwinds, the outlook for the region is clearly much less favourable than in the recent past, says the report.
Activity in sub-Saharan Africa is projected to decelerate from 5 percent in 2013–14 to 3¾ percent in 2015, before strengthening somewhat to 4¼ percent in 2016 on the back of the gradual pickup in global activity.
According to the IMF, the development agenda in sub-Saharan Africa for the next 15 years is set to be shaped by the Sustainable Development Goals (SDGs) launched at the New York UN summit this September.
Centred on 17 goals, the SDGs are broader in scope than the Millennium Development Goals that were endorsed at the turn of the century, and aspire to improve economic and social wellbeing on a sustainable basis.
“More equitably distributed growth would improve living conditions not only in terms of material goods and services but also in terms of social cohesion.
“To sustain growth over time, economies must reduce their vulnerability to external shocks and domestic conflicts, encourage the rational use of non-renewable resources, and minimize social and environmental externalities,” said the Fund.
While these efforts will specifically target the least-developed countries, the International Monetary Fund said they will require collaboration on many fronts among developing and higher-income countries.
It noted that macroeconomic and financial policies have a crucial role to play in achieving these goals.
The specific form these take would depend greatly on each country’s specificities, including its economic structure, level of economic and human capital development, and institutional capacity.
Meanwhile, the IMF cautioned that establishing a broad-based corporate income tax remains a longer-haul objective for many countries in the region.
Those steps should go hand-in-hand with continuous efforts to improve public finance management and tax administration capacity.
Efforts to expand both the tax base and tax compliance should also be explored, as it would allow for raising higher revenues without burdening any existing single taxpayer group, therefore reducing distortions, improving economic efficiency, and supporting income and job creation