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Africa’s Pulse: African Economies Need Deeper Diversification and Better Policies

Latest Issue: 
  • October 2016


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STORY HIGHLIGHTS
  • Economic growth across the continent is projected to fall to 1.6% this year, the lowest level in over two decades.
  • Despite this decline, economic growth is showing signs of resilience, particularly in Ethiopia, Rwanda, Tanzania, Côte d’Ivoire, and Senegal, suggesting that Sub-Saharan Africa is growing at diverging speeds.
  • Increasing agricultural productivity is central to transforming Sub-Saharan African economies and promoting sustained and inclusive growth.

WASHINGTON, September 29, 2016 ─ The countries of Sub-Saharan Africa present a diversified landscape of economic growth, according to the new Africa’s Pulse, a bi-annual analysis of the state of African economies conducted by the World Bank.

While economic growth across the continent is projected to fall to 1.6% this year—the lowest level in over two decades—GDP growth is showing resilience in about a quarter of countries. Some of the best performers—Ethiopia, Rwanda, and Tanzania—have continued to post annual average growth rates of over 6%, and Côte d’Ivoire and Senegal have recently climbed into the ranks of top performing countries.

The weak aggregate economic performance is mainly a reflection of deteriorating economic performance in the continent’s largest economies: Nigeria and South Africa, which together account for half the region’s output. In Nigeria, GDP contracted during the first two quarters of the year due to low oil revenues and a fall in manufacturing, among other things. In South Africa, the economy contracted slightly in the first quarter, before rebounding in the second quarter, thanks to an increase in mining and manufacturing output.

Generally, oil exporters in Sub-Saharan Africa continue to experience slippages in economic growth due to shocks from the collapse of commodity prices. This underlines once more the limited diversification of their economies.

“Adjustment to low commodities has been limited in several commodity exporters, even as vulnerabilities have mounted,” says Punam Chuhan-Pole, World Bank Lead Economist for Africa. “Adjustment efforts should include measures to strengthen domestic resource mobilization, so as to reduce overdependence on resource-based revenues.”

A deeper analysis of economic growth patterns in the region shows that countries’ economies have performed differently in the years before and after the global financial crisis of 2008. Some countries, those categorized as “established”, have sustained strong performance in both periods. Several other countries are seeing strong performance in recent years, and are categorized as “improved”. Overall, these resilient groups of countries show more diversified export structures and have made more progress on structural reforms, business regulation, rule of law, and government effectiveness.

Outlook

Against this backdrop, a modest rebound is forecast for Sub-Saharan Africa in 2017. Economic activity is expected to rise to 2.9%. The uneven growth performance we currently see should continue, with the region’s largest economies and other commodity exporters experiencing modest growth, as commodity prices strengthen slowly, while other countries continue to expand at a robust pace, supported in part by infrastructure investments.

Looking ahead, increasing agricultural productivity on the continent is central to transforming Sub-Saharan Africa. Analysis shows that addressing the quality of spending and the efficiency of resource use is even more critical than addressing the level of agriculture spending.  Rebalancing the composition of public agricultural spending could reap massive payoffs.

The Report’s Key Messages

  • After slowing to 3% in 2015, economic growth in Sub-Saharan Africa is projected to fall to 1.6%in 2016, the lowest level in over two decades.
  • The sharp decline in aggregate growth reflects the challenging economic conditions in the region’s largest economies and commodity exporters as they continue to face headwinds from low commodity prices, tight financing conditions, and domestic policy uncertainties.
  • At the same time, in about a quarter of countries, economic growth is showing signs of resilience. Some countries—Ethiopia,  Rwanda, and Tanzania—have continued to post annual average growth rates of over 6%, exceeding the top tercile of the regional distribution; and several other countries—including Côte d’Ivoire and Senegal—have moved into the top tercile of performers.
  • Risks to the outlook remain tilted to the downside. On the external front, old risks remain salient and include slower improvements in commodity prices, tighter global financial conditions, and security concerns.
  • Post-global financial crisis performance in the region as a whole has not been as stellar as it was pre-crisis. However, there are some diverging growth experiences across countries.
  • Increasing agricultural productivity is central to transforming Sub-Saharan African economies. Addressing the quality of public spending and the efficiency of resource use is even more critical than addressing the level of spending.


Contacts

Washington
Aby Toure
Communications Officer
(202) 473-8302
Email




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