21 October 2014
Sub-Saharan African countries should focus on channelling spending towards infrastructure investment and other development needs, says the IMF. (Photo: African Development Bank)
The International Monetary Fund (IMF) expects the strong growth trends that sub-Saharan Africa has been experiencing in recent years to continue in the next two years, albeit at a faster rate.
Releasing the October 2014 IMF Regional Economic Outlook: Sub-Saharan Africa report on 20 October, director of the IMF’s African Department, Antoinette Sayeh, said the region’s economy is forecast to continue “growing at a fast clip, expanding by about 5% in 2014, the same level as in 2013, and accelerating to around 5.75% in 2015′. “This growth momentum is particularly pronounced in the region’s Low- Income Countries, where activity is forecast to accelerate to 6.75 to 7% in 2014- 15,’ she said.
Tailwinds to economic growth
A combination of infrastructure investment, expanding services, and robust agricultural production are proving tailwind to the strong economic growth in most of sub-Saharan Africa countries, according to Marco Pani from the IMF African Department.
“Growth momentum remains particularly strong in Nigeria, the region’s largest economy, and in the region’s low income countries. Recent revisions of national accounts data, notably in Nigeria, have also revealed that the economies of the region are more diversified than previously thought, highlighting in particular the large role played by services.’
But in a few other countries economic activity is facing headwinds from domestic policies, according to Pani. He said South Africa’s growth remains stunted, “under the drag of difficult labour relations, low confidence, and inadequate electricity supply’.
Sub-Saharan countries should continue implementing monetary policies which focus on reducing inflation. South Africa is among countries that are tightening monetary policy and began an interest-rate hiking cycle with a 50 basis point increase in rates in January this year. Another rate increase of 25 basis points was implemented in July. The moderate rate increases are to take into account weak economic growth.
South Africa is also one of the sub-Saharan African countries that has embarked on a fiscal consolidation and Sayeh said these countries should continue on this path.
“In the few countries where budgets have become overextended and financing constraints have emerged, fiscal consolidation is necessary, but will need to avoid overly adverse consequences for the poor and vulnerable groups,” she said.
On the downside, continued high growth and favourable global financial market conditions have not been sufficient to avert debt build-up and financing difficulties for some countries. However, Sayeh warned that a pronounced economic slowdown in emerging markets, particularly China, or a disorderly normalisation of monetary policy in the United States, could have a protracted impact on the region’s economies.
“In that context, for the vast majority of countries in the region, sustaining high growth rates remains the key policy consideration, including to foster job creation and reduce poverty. Policies should continue to emphasize growth- enhancing measures. In particular, the focus should be on boosting fiscal revenue mobilization, channelling spending towards infrastructure investment and other development needs, safeguarding social safety nets to encourage more inclusive growth, and improving the business climate,’ she said.
Ebola a threat to Africa’s economy
The Ebola outbreak in West Africa is a threat, and is exacting a heavy economic toll in the affected countries Guinea, Liberia and Sierra Leone. Economic spill-overs are starting to be felt in some neighbouring countries, according to Sayeh.
“In addition, the baseline scenario of solid growth is predicated on a number of increasingly potent downside risks being lifted. Should the Ebola outbreak be more protracted or spread to more countries, it would have severe consequences for activity in the affected countries and larger spill-overs.’
Sayeh said in the countries currently affected by the Ebola outbreak, fiscal accounts are coming under considerable pressure. Ideally, any offers of aid should be channelled through grants from the donor community, to enable the countries to accommodate higher Ebola-related spending and to help avoid an even more pronounced decline in economic activity, she said.
South African Competitiveness Forum
From 4 to 5 November 2014, Brand South Africa will host the second annual South African Competitiveness Forum (SACF) in Sandton, Johannesburg. A Brand South Africa initiative, the SACF is a strategic platform through which government, business and civil society stakeholders consult in an effort to identify the competitive and reputational strengths, and challenges the South African brand faces. Follow the conversation via Twitter @Brand_SA #CompetitiveSA.