Friday, January 24, 2020 / 06:00 AM / By Proshare Research/ Header Image Credit: EcoGraphics
Africa Macroeconomic Review and Outlook
Africa's macroeconomic performance has taken a different shift from consumption-driven economies to more investment driven economies. The most recent data showed that consumption's contribution to real GDP growth declined from 55% in 2015 to 48% in 2018 while investment's contribution increased from 14% to 48%. Although most of the growing economies are more financed by consumption.
Although Africa recovered from trough in 2016, the projected medium-term growth of 4 percent is insufficient to make a dent in unemployment and poverty. Population growth of more than 2 percent implies that GDP per capita will increase less than 2 percent, leaving convergence with middle- and high-income economies slow to materialize. And the growth path is insufficient to create enough jobs for the growing labour force. Africa's low elasticity of employment relative to growth reflects an economic structure that depends heavily on primary commodities and the extractive sector, with little progress in labour-intensive manufacturing.
Despite the increasing concerns as regards rising debt, there is no systematic risk of a debt crisis in the continent. The traditional approach to estimating debt sustainability classifies 16 countries in Africa at high risk of debt distress or in debt distress. The debt situation in some countries has become worrisome, with solution requiring in-depth knowledge of the source of the debt distress.
The following factors have shaped the African economy in 2019, they include;
- A slowdown in global growth.
- Trade tension and policy uncertainty between the US and China.
- A few regional crises such as weather-related shocks (cyclones Idai and Kenneth), Ebola outbreaks, security tensions.
- Africa Development Bank has projected a growth rate of +4% in 2019 and 4.1 percent
- There is a great degree of diversity in the growth paths across countries. Non-resource-intensive countries are expected to grow nearly three times faster (at +6.0% in 2019) than oil exporters (at 2.1%) and other resource-intensive countries (at 2.7 %).
- Of Africa's projected +4% growth in 2019, North Africa is expected to account for 1.6 percentage points, or 40%. But the average GDP growth in North Africa is erratic because of Libya's unstable development. After declining for three years, Libya's GDP increased in 2017 and 2018 because of higher oil production. Despite this, the country's GDP remains roughly 15 percent below its pre-revolution level. But the political and humanitarian crisis continues, and the highly uncertain outlook depends on achieving political stability.
- Tunisia's economy is gradually recovering after near-stagnation in 2015 and 2016 because of security problems and social conflicts. Growth is driven by improved tourism and manufacturing production and a more expansive fiscal policy.
- Unlike other main commodity exporters, Algeria weathered the commodity price shock in 2015 and 2016 through expansionary fiscal policies; growth is expected to weaken in 2019 and 2020.
- Morocco's agriculture and extractive industry's growth has improved GDP levels supported by accommodative monetary policy, as inflation remains low.
- Egypt's growth remains positive, and its stabilization program is now paying off. The return of investor confidence has inspired growth, private consumption, and higher exports, which have benefited from adjustments in the real exchange rate.
- East Africa, the fastest-growing region, is projected to achieve growth of +5.9% in 2019 and +6.1% in 2020. Between 2010 and 2018, growth averaged almost +6.0%, with Djibouti, Ethiopia, Rwanda, and Tanzania recording above-average rates. But in several countries, notably Burundi and Comoros, growth remains weak due to political uncertainty. In South Sudan, GDP continues to fall due to political and military conflicts, and the non-implementation of the 2015 peace agreement.
- West Africa saw high growth until 2014, but an economic slowdown followed due to the sharp drop in commodity prices and the Ebola crisis. Nigeria, Africa's largest economy and largest oil exporter, fell into recession in 2016. Its gradual recovery in 2017 and 2018, helped by the rebound of oil prices, is restoring growth in the region. Other countries-including Benin, Burkina Faso, CÃ´te d'Ivoire, Ghana, Guinea, and Senegal-have seen growth of at least +5% in the past two years and are projected to maintain it in 2019 and 2020.
- Growth in Central Africa is gradually recovering but remains below the average for Africa as a whole. It is supported by recovering commodity prices and higher agricultural output. Several countries have reduced public spending, including on investment, to restore debt sustainability. After rapid growth, Equatorial Guinea's economy has been shrinking since 2013 as oil production declines and the nonoil sector has been too weak to compensate. In 2018, its real GDP was about a third below its level six years ago.
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