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Unit 4 Macro: Taking the Pulse of Africa - Growth Outlook is Good

Tuesday, April 16, 2013
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The latest edition of African Pulse published by the World Bank focuses on growth and development prospects in Sub-Saharan Africa and the overall sentiment is that the region is set to continue with a strong growth performance. 

Real GDP in Sub Saharan Africa (SSA) grew by 5.8% in 2012 nearly one percentage point higher than the average for all development economies last year.  The SSA region contains some of the fastest growing countries in the world at present

Growth has been driven forward by many factors including:

  1. Rising domestic demand helped by continued growth in real per capita incomes
  2. Still high commodity prices maintaining export revenues and tax revenues for countries who are net exporters of oil, gas and other minerals. Higher prices for key exports have brought about a trend rise in the terms of trade for many SSA countries - IMF data suggests a 30% improvement in the terms of trade since 2004 - see the chart below
  3. Sustained high levels of net inward investment helping to bring about a rise in the investment-to-gdp ratio

Much of the inward investment into SSA remains focused on extractive industries - for example expanding the scale of new gas along the East African coast and crude oil in West Africa

  • FDI also attracted to high potential rates of returns in construction, transport, telecoms,. energy and water sectors.
  • Signs too of growing FDI in retail industries notably in countries such as Kenya, Ghana and South Africa
  • Tourism growing strongly in several SSA countries especially in Zambia, Rwanda, Senegal and Ghana
  • Investment 20 SSA countries now have sovereign credit ratings and are entering the international bond market - In 2012, Zambia issued a maiden 10-year $750 billion Euro bond at a 5.625 percent yield (plenty of crisis-ridden Euro countries would love to be able to do this!)
  • SSA nations also tapping into bi-lateral financing from the likes of China and Brazil

Risks / Constraints on Growth

  • Export growth from SSA nations remains highly dependent on natural resources whose prices are volatile
  • There has been a diversification of export markets - shifting towards the BRICs and beyond - the composition of exports remains broadly unchanged
Key risks are:

  1. Weaker global economy - will hit global tourism, cause commodity prices to fall (hitting export revenues and the terms of trade)
  2. Steeper slowdown in China - direct effect on export demand
  3. Political, civil and labour unrest - simmering conflicts in fragile states
  4. Vulnerability to higher food prices
  5. Inequalities remain structurally high although some limited progress made in reducing the size of the Gini coefficient (note: serious health warning about the accuracy of income and consumption data here)

Resource rich countries - defined as resource-rich if over 1980-2010 on average more than 5 percent of its GDP has been derived from oil and non-oil minerals (excluding forests)

Business Week article - click here

World Bank report - click here

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