East Africa leads continental growth in 2016

By Magreth Nunuhe

Windhoek – For the fourth consecutive year since 2013, East Africa remained the fastest growing sub-region in 2016 on the back of agricultural growth, an emergent manufacturing sector, improved public spending on infrastructure and resilient household consumption, among others.

This is according to the 2017 Economic Report on Africa (ERA2017) recently launched in Dakar, Senegal.

The report examines how to harness the opportunities from rapid urbanisation to speed industrialisation and accelerate structural transformation.

It also identifies and analyses the drivers, enablers and policy levers for strengthening linkages between industrialisation and urbanisation.

Ethiopia, Kenya, Rwanda and Tanzania were the main players in the East African Community’s growth with public spending on infrastructure being the main contributor for Ethiopia’s growth.

Kenya’s investment in infrastructure and buoyant household consumption continued to drive the expansion, offsetting a decline in tourism on security concerns, while Rwanda’s agriculture and services drove growth though lower commodity prices.

Robust domestic demand with growing services and manufacturing sectors in Tanzania were the main drivers for growth in 2016.

However, Burundi’s gross domestic product (GDP) declined by 3.9 percent in 2015 as a result of the socio-political crisis affecting the country, which brought to an end a decade of economic stability with average growth of 4.5 percent per annum, while Somalia’s economy is estimated to have grown by 3.7 percent.

Somalia’s trade deficit widened to nearly $3 billion, financed mainly with international development assistance and remittances, which leaves the economy vulnerable to external shocks.

West Africa, in second place in Africa’s growth performance for the period 2013-2015, slumped to its lowest position last year with a steep decline from 4.4 percent growth in 2015 to 0.1 percent growth in 2016.

This was mainly attributed to Nigeria’s economic contraction due to depressed oil prices, falling oil production, energy shortages and price hikes, scarcity of foreign exchange and depressed consumer demand.

While Senegal and Côte d’Ivoire performed better in the sub-region by registering robust growth of 6.3 percent and 8.0 percent, respectively, particularly in energy, infrastructure, agriculture, fisheries, tourism, textiles, information technology and mining, a decelerating economic growth in Ghana in 2016 further pulled down the sub-region’s growth.

This was due to tensions related to recent elections, lower consumer confidence, reduced oil production and low oil prices.

On a positive note, the Gambia experienced growth in recent years, fluctuating from -4.3 percent in 2011 to 5.9 percent in 2012 and back to 0.9 percent in 2014.

The economy of the Gambia is mainly dependent on rain-fed agriculture and on services and exogenous factors such as climate change and the recent outbreak of Ebola virus disease in West Africa are endangering stability in the country.

Since 2013, the economy of Ghana has endured growing fiscal and trade deficits, high inflation and a weakening currency.

The average growth rate for 2014 and 2015 was around 4.1 percent, below the West African average of 5.2 percent.

In an attempt to correct the fiscal and trade deficits and improve price and exchange rate stability, Ghana pursued macroeconomic stability policies, but its success was mitigated.

Although Southern Africa surpassed West Africa from the bottom to become the second least growing region with a percentage growth of 1 percent in 2016, down from 2.5 percent growth in 2015, it still remains among the slowest growing sub-regions since 2014.

Reflecting negatively on the sub-region was the sub-region’s largest economy South Africa and Angola’s declining growth, which included low commodity prices, drought and shortage of electricity, tighter financial conditions and low business and consumer confidence.

The real gross domestic product (GDP) of Malawi fell sharply to 3.1 percent in 2015, from 5.7 percent in 2014 and dropped further to 2.7 percent in 2016 as a result of the 2014 and 2015 El Niño-induced droughts.

In Mozambique, the GDP growth rate in 2015 was 6.6 percent compared to 7.2 percent 2014 – a decline largely attributed to the global economic slowdown, which culminated into reduced demand and prices of primary products.

Nonetheless, Mauritius and Mozambique recorded positive growths of 3.6 and 4.2 percent, respectively, mainly driven by a rise in final consumption expenditure, but the two countries could not offset sluggish economic growth in the sub-region.

North Africa registered the second fastest growing economy in Africa, although with a declined growth of 2.6 percent in 2016, down from 3.6 percent recorded in 2015.

This was driven by slower growth in Algeria, Egypt and Morocco. Low oil prices weighed on public investment and private consumption in Algeria, while in Egypt weaker tourism performance and a consequent decline in foreign currency earnings led to the decline in the economy.

Drought in Morocco hit agriculture, crimping private consumption and government spending, while the Algerian economy expects a modest slowing of growth in 2016, down to 3.5 percent.

The oil price fell from an average of more than $111 in 2011 to less than $55 at the end of December 2014. As over 60 percent of the State budget is financed by oil taxation, the decline in the oil price in Algeria had a significant impact on government finances.

The budget deficit rose to 16 percent of GDP in 2015.

Tunisia achieved growth of 0.8 percent due to the performance of the olive oil sector, offsetting the drop in the contribution from tourism.

Central Africa came in third place with decelerated growth of 2.4 percent, down from 3.4 percent. This was mainly on the back of Cameroon’s fall in oil output and low oil prices, while Chad’s non-oil economy was hit by spending cuts and security problems.

The small proportion of GDP attributable to manufacturing industry (2.4 percent in 2015), compared with agriculture (16.6 percent), oil (13.4 percent) and livestock (6.4 percent), shows the constraints on structural transformation in the Chadian economy.

Growth in the Central African Republic (CAR) accelerated with political stability boosting consumption and investment, while the abundance of raw timber provides real opportunities to develop a forest industry that would create employment and added value.

The country also has significant deposits of minerals such as iron, gold, uranium, copper and diamonds.

Expansion in the Republic of Congo also accelerated as new oilfields became operational, though weak global oil prices meant major cuts in public investment and weighed on growth in the non-oil sector.

All in all, economic growth is expected to recover for  Sub-Saharan Africa (SSA) in 2017 on the back of expected moderate recovery in commodity prices while experts forecast the region’s GDP to increase to 2.9 percent this year and further surge up to 3.7 percent in 2018, according to the United Nations Economic Commission for Africa (UNECA).

Africa’s growth declined to a decade-low of 1.7 percent in 2016 from 3.7 percent in 2015, below both the global rate (2.3 percent) and that in most other developing regions.

The African continent experienced its worst economic challenges in 2016, especially for Sub-Saharan Africa (SSA), from resurgence of intercommunal violence and uncertainty related to end of political transition, socio-political crisis, El Niño-induced droughts, the slump in oil prices, the deteriorating security situation in some countries, widening trade deficit, constraints in the energy and communication sectors to the reduced demand and prices of primary products.

“Despite the recent slowdown of the global economy and the weakening of Africa’s economic performance with the attendant implications for inclusion and sustainability, the long term growth outlook for Africa remains promising,” read the 2017 Economic Report on Africa.

This will be profoundly shaped by the way the rapid urban transition is managed, which is the fastest urbanising region after Asia, expected to be predominantly urban in less than 20 years.

“It shows that industrialisation requires better functioning cities and systems of cities, which in turn require better performing industrialization processes,” says the report.

April 2017
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