Africa: Second Fastest-Growing Region in the World

IMF Blog, June 10, 2013

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Sub-Saharan Africa is the second fastest-growing region of the world today, trailing only developing Asia.
In 2012, Sub-Saharan Africa maintained solid growth, with output growth at 5 percent on average.
Key factors supporting the region through the Great Recession and into 2012:
- Strong investment.
- Favorable commodity prices.
- Generally prudent macroeconomic management.
Dynamic sectors in many countries:
- Construction.
- Agriculture.
- Mining (especially due to new extractive industry capacity coming on stream).

The region has seen growth at two different speeds:
- Very strong growth among oil-exporting and low-income countries, supported by exports such as oil, minerals, agricultural products, and tourism.
- Slowed growth in middle-income countries in 2012, reflecting closer ties to the euro area; South Africa adversely affected by labor unrest in the mining sector.
One-off and country-specific supports expected to bolster growth in some countries:
- Nigeria’s economy rebounding after floods.
- Recovery of agriculture in regions previously affected by drought.
- Gradual normalization of activity in some post-conflict countries, such as Côte d’Ivoire.
Two-speed growth expected to persist for the next few years:
- Middle-income countries: continue to grapple with sluggish activity and limited room for policy stimulus.
- Oil exporters and low-income countries: expected to have solid growth.
Inflation outlook:
- Regional inflation expected to continue the downward trend begun in 2012.
- A handful of countries, such as Malawi, will probably still see high inflation going forward.

The latest Regional Economic Outlook projects a broadly positive near future for the region, with a moderate acceleration of growth expected in 2013–14.
Risk scenario analysis indicates adverse global shocks would affect sub-Saharan Africa’s growth, but not derail it.
Countries with limited policy buffers and a narrow export base could experience more severe adverse effects.

External downside risks identified:
- (i) A prolonged near-stagnation in the euro area.
- (ii) A slowdown in major emerging market economies.
- Medium-term risks for the global economy remain high, although the near-term risk outlook has improved.
Domestic risks identified:
- Adverse climatic developments.
- Internal conflicts.
- These events could be severe for individual countries and their close neighbors, but would not have significant effects on the region as a whole.

The region’s positive outlook is conditional on implementing sound economic policies; priority short-run policy actions to contain or prevent imbalances include:
- Address sizable fiscal deficits in some countries, such as Ghana, with significant fiscal adjustments mindful of weak demand conditions where relevant.
- Monitor large fiscal expansion plans in some oil exporters, such as Angola, Chad, and the Republic of Congo, due to concerns over absorption capacity and cost effectiveness.
- Maintain continued higher interest rates set by central banks in countries where inflation remains high and/or volatile, such as Ethiopia, Malawi, and Tanzania.
- Carefully monitor surging current account deficits in some low-income and fragile countries, even when largely financed by export-oriented foreign direct investment.
Rebuilding buffers to handle external shocks remains a priority in many fast-growing countries:
- Many countries could find it difficult to raise sufficient financing for larger deficits in a downturn.
- The majority of them are not constrained from borrowing by high debt as of now.

Accelerating job creation and reducing unemployment is a pressing challenge across the region:
- Middle-income countries: high levels of visible unemployment.
- Low-income countries: robust output growth is not producing strong growth in wage employment.
Policy recommendations to boost employment (tailored to country characteristics):
- Amending labor market regulations to reduce disincentives for hiring while maintaining worker protection.
- Investing in education systems that deliver workers with the skill sets required by employers.
- Revising hiring practices and compensation policies in the public sector to ensure an even playing field.
- Improving the business climate to boost employment demand.

Sub-Saharan Africa’s access to international sovereign bond markets has grown significantly, reflecting easy global financial conditions and the region’s favorable economic prospects.
Recent sovereign bond market developments cited:
- Zambia’s debut Eurobond in September 2012 was massively oversubscribed and priced below Spain’s 10-year bond at the time.
- Tanzania tapped global capital markets at end-February 2013.
- Rwanda did the same just last month.
Opportunities and risks from increased access to global capital markets:
- Recommendations for countries accessing these markets:
- Maintain prudent fiscal policies that safeguard long-term sustainability.
- Consider bond issues against a range of financing instruments under an appropriate medium-term debt management strategy.
- Follow best practices to get the best possible access terms.
- Note: International sovereign bonds may not be the best option for financing infrastructure investment; other funding options may provide more tailored and cost-effective financing.

Article author: Antoinette M. Sayeh; June 10, 2013