## Africa: Second Fastest-Growing Region in the World

_IMF Blog, June 10, 2013_

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## Bibliographic details
- Authors: Antoinette M Sayeh
- Published: June 10, 2013

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### Regional growth performance and drivers
- 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).

### Two speeds of growth within the region
- 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.

### Forecasts and scenarios
- 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 and domestic risks
- 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.

### Policy challenges and recommended policy responses
- 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.

### Employment and structural policy priorities
- 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.

### Renewed global investor interest and sovereign bond access
- 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*

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## References

- [Regional Economic Outlook](http://www.imf.org/external/pubs/ft/reo/2013/afr/eng/sreo0513.htm)

_Source: https://www.imf.org/en/blogs/articles/2013/06/10/africa-second-fastest-growing-region-in-the-world_