WASHINGTON, April 20, 2015—The World Bank Group forecasts that economic growth for African countries will slow in 2015 to 4.0% from 4.5% in 2014, a downturn which largely reflects the sharp fall in global prices for oil and other key commodities.
At a seminar with African finance ministers, central bankers and their delegations during the World Bank Group Spring Meetings, the Bank’s Africa Chief Economist Francisco Ferreira explained that his 2015 forecast was below the 4.5% average annual growth rate of the past two decades, and well short of Africa’s peak growth rates of 6.4% in 2002-08.
Africa he said was coming to the end of its long commodities super cycle with steadily shrinking revenues for the continent’s major producers of oil, gold and natural gas.
The 50% fall in oil prices since June 2014 will worsen terms of trade for more countries than the 18 for whom oil (12% of Africa’s GDP) is the leading export revenue earner, according to data shared Saturday by the World Bank Group. The prices of 36 other commodities – among them, gas, gold, iron ore but also coffee, cocoa, and rubber - are more closely correlated to the tumbling price of oil.
Thirty-eight of Sub-Saharan Africa’s 49 countries, home to 90% of the continent’s population and accounting for 90% of the region’s growth domestic product (GDP), are expected to post negative trade balances. They include oil producers like Angola, Nigeria, Chad and Congo-Brazzaville but also non-oil dependent economies. Mauritania and Sierra Leone, for example, could face terms of trade losses 30 % higher due to lower iron ore prices. Agriculture reliant countries, like Cote d’Ivoire, are not spared and a number of countries, like Nigeria, have had to devalue their currencies to stay competitive.
“The boom is over,” World Bank Group officials put it bluntly Saturday. They insisted, however, that the “Africa Rising” phenomenon predated the boom and should be able to outlive it. “Africa can successfully find its own path to economic development”, Ferreira said, citing the fact 47 of 49 Sub-Saharan African countries continued to grow, despite the Great Depression, with four of them growing above 8%.
Top Priority: Preserve Gains Made by the Poor
Africa’s remarkable average 4.5% GDP over the past two decades has only reduced poverty by 13 percentage points – from 60% to 47%. This is not as fast as in other regions. East Asia’s poverty rate has declined 44% over the last 20 years.
Africa’s high population growth (2.5 to 2.6%) is partly to blame. For example, while Tanzania grew at 2.2% higher than Seychelles, living standards in Tanzania rose slower than in Seychelles.
Warning Saturday against any reforms that would repeat the errors of the structural adjustment programs of the 1980s, the World Bank Group urged governments to take action on three priority areas: (i) harness Africa’s rapid urbanization and fast-growing population to ensure that the latter yields a demographic dividend, not a disaster; (ii) invest on the productivity agenda, by improving the quality of learning and boosting output per worker; and (iii) promote more inclusive, pro-poor growth.
The World Bank Group Vice President for the Africa Region, Makhtar Diop, called for action to ensure that Africa does not remain the region with the most expensive food, the most expensive energy, the most expensive housing, and the highest costs for healthcare.
“Africa must pay attention, so that the gains made by the poor (during the boom) are protected,” Ferreira said, urging African governments to seize the opportunity of falling global oil prices to end inefficient programs such as fuel subsidies that benefit the rich more than the poor.
View from Angola and Cote d’Ivoire
Also speaking at the seminar, Cote d’Ivoire’s Finance Minister, Nialé Kaba, said her country illustrates how conflict destroys or reverses development gains, but also how a return to peace, supported by donors and renewed investor interest, can bring about a quick turnaround. She was less enthusiastic about one proposal by the seminar that African countries expand domestic revenue collection. She felt that more diversification and trade which favors value addition locally to raw materials before export would serve Africa better.
Angola’s Finance Minister, Armando Manuel, challenged some of the data on which reform proposals are based, citing the absence of data on Africa’s huge informal sector. He wondered aloud what is needed to ensure that excessive liquidity in African economies is a blessing, rather than a curse. He suggested that Africa’s high labor costs, especially in extractives, should be blamed on expatriate fees. He encouraged African experts to share more of their development experiences among themselves and praised “new” development partners like China for venturing to invest where “old” donors fear to tread.
The seminar also urged action to address two emergencies: the rising incidence of violent deaths, refugee movement and internally displaced persons caused by political militia such as Boko Haram, and the need for Africa to strengthen its healthcare and disease surveillance systems. It called for action to curb waste, improve efficiencies, build more capable institutions, improve governance, maintain macroeconomic discipline, improve security, and prioritize pro-poor development programs.
Not all of Africa’s problem is lack of financing, seminar attendees were told. Borrowing from an unnamed colleague of his, Ferreira said “Africa needs more health for its money than it needs money for its health.”