2017: Economic Outlook for Sub-Saharan Africa
After half a decade of economic growth averaging about six percent from 2010 to 2014 , sub-Saharan Africa’s (SSA) GDP growth descended to its lowest level in more than 20 years, declining from 5.1 percent in 2014 to 3.4 percent in 2015 and further down to 1.5 percent in 2016.
This economic situation was expected due to the crash in commodity (oil and natural resources) prices that the world witnessed since mid-2014, considering that many of the largest sub-Saharan African economies depend heavily on commodity exports. Also many countries in Eastern and Southern Africa have been experiencing severe drought influenced by climate-change, all these coupled with a global environment that has become increasingly unfriendly.
In reality, the weak economic condition is not parallel across the region.
The continent’s three largest economies—Angola, Nigeria and South Africa—are the worst-hit countries. These countries account for about 60 percent of SSA’s GDP and they are responsible for the overall picture of poor economic performance on aggregate level. Thus, a different scenario is revealed when broken down into each country’s economic circumstance.
The International Monetary Fund (IMF) in its recent economic report on SSA classified the countries in the region into two groups—the group of 23 countries with high reliance on commodity exporting which now suffer serious economic pressure—and another group of 22 countries that are non-resource intensive and thus have continued to maintain high economic growth.
According to the IMF, the strong growth momentum of non-resource intensive countries remain undiminished since they are oil importers and they benefit from lower oil import prices and other conditions such as improved business environment and continuous strong infrastructure investment. These countries include Cote d’Ivoire, Ethiopia, Kenya, Tanzania, Senegal and Rwanda each with a GDP growth that range between six and eight percent in 2016 and projection for a similar growth trend in 2017.
Based on the region’s uneven growth level, foreign investors and other trade stakeholders would need to assess the potential and stability of each country as against considering the latest regional growth rate of 1.5 percent which appears misleading and discouraging. In my opinion, there should be moderate concern over this result as the IMF has also hinted that the outlook for SSA is a short-term challenge. It expressed optimism that medium-term growth prospects of the region still remain favorable to the extent that the key fundamentals of growth such as investment in infrastructure, strong private consumption and favorable demographics continue to be in place.
The economic acceleration recorded over the last decade was enabled by reforms and improved domestic policies across the region. As stated in the World Bank Doing Business 2017 report, the continent is the second-highest adopter of reforms and it accounts for over a quarter of all reforms globally.
Many countries in SSA have made pronounced efforts to improve the business climate for investment which has driven economic growth, reduced poverty and expanded the middle class with disposable income. The increased economic activity during this period can also be attributed to substantial progress made in financial development, technology and advanced systems in banking and telecommunications which supported growth and reduced volatility in the region.
Finally, major steps have been taken by some governments in SSA to boost investor confidence and trust through more transparency in regulatory procedures including taxation and property. Trust in the political system is a critical tool that influences investors’ decisions in channeling investment flows and as SSA continues to address issues that can hold back investment flows such as institutional frameworks and corporate governance, the region remains a favorable destination for trade and investment.
Kemi Arosanyin is a Global Trade contributor. She writes, speaks, and advises on trade and investment in sub-Saharan Africa.