Ore truck in Khathu, South Africa, where exports have slowed in part because country’s economy closely tracks global trends (photo: Siphiwe Sibeko/Reuters)
REGIONAL ECONOMIC OUTLOOK
The IMF’s October 2012 Regional Economic Outlook for Sub-Saharan Africa finds that economic activity in the region has continued generally robust amid the hesitant global recovery. Regional output is projected to expand by about 5¼ percent in 2012 and 2013, a similar pace to that observed in 2010–11.
“We expect growth in sub-Saharan Africa to remain quite robust,” IMF African Department Director Antoinette Sayeh told reporters at a news conference in Tokyo during the 2012 IMF–World Bank Annual Meetings. But she added that the regional outlook was subject to serious risk from adverse developments in the global economy. “Downside risks are greater than they were before, and policymakers need to be even more alert,” Sayeh stated.
A new global slowdown would impair expansion in the region but, absent a wider financial crash of the type triggered by the collapse of the U.S. investment bank Lehman Brothers in 2008, a downturn would not derail growth. Depending on the characteristics of the slowdown, some individual countries might experience more severe disruptions because of specific exposures to certain export markets, commodity prices, or sources of remittances and foreign investment.
Favorable growth performance
Economic activity has held up well in sub-Saharan Africa, supported by generally prudent policies and improved fundamentals in most countries (see table). Domestic demand has provided impetus, helped by public and private investment.
Across the region, economic performance has varied. Most low-income countries have been enjoying a solid expansion, and in some cases new resource projects under way are providing an extra fillip, as with oil in Niger and iron ore in Sierra Leone.
But growth has softened in middle-income countries that more closely track the global economy. For instance, in South Africa exports have slowed and business confidence has fallen, notwithstanding supportive macroeconomic policies. At the same time, political instability has disrupted activity in a few countries, particularly Guinea-Bissau and Mali,
The near-term outlook is still broadly positive, with aggregate output growth in sub-Saharan Africa projected to remain above 5 percent in 2012 and 2013, provided that the global economy develops broadly along the lines envisaged in the October 2012 World Economic Outlook. Within that average, the pace of output growth is expected to vary significantly across countries, with more sluggish growth in established middle income countries, including South Africa and its immediate neighbors.
Improved inflation outlook
Inflation in sub-Saharan Africa has been slowing in 2012. This partly reflects the reversal of the 2010–11 spike in global food and fuel prices. But it also reflects monetary tightening, especially in East Africa, where the rise in inflation had been the most marked in the region. Against this backdrop, inflation in sub-Saharan Africa is anticipated to maintain its downward trend, and reach some 8 percent by end-2012 and about 7 percent in 2013 (see chart, upper panel).
The recent surge in world prices of cereals is taken into account in these inflation forecasts, but further increases in world prices would present new risks. The surge in cereal prices so far has also exacerbated food security concerns in countries and subregions in sub-Saharan Africa experiencing poor rainfall (see chart, lower panel).
Governments in countries facing food security problems are working on response measures with the support of the United Nations World Food Program, the World Bank, and other development partners.
Downside risks
Risks to the growth outlook have increased over the past six months; proximate risks include the scope for intensification of stresses in the eurozone and the risk of a sharp fiscal tightening in the United States. These would spill over into sub-Saharan Africa, including via reduced exports and investments.
An assessment of the potential impact on sub-Saharan Africa of a sustained slowdown in global growth of about 2 percentage points of GDP, as in one of the adverse scenarios considered in the October 2012 World Economic Outlook, points to a likely reduction in the regional growth rate of about 1 percent a year. The impact would be more severe in countries where exports are undiversified and policy buffers are low.
Policy options
While most sub-Saharan African countries have rebounded from the Great Recession, many have been slow in rebuilding their fiscal positions from the wider deficits necessitated by that crisis. As a result, policy space to offset the impact of a new global downturn would be more limited now than it was back in 2009.
If the recovery holds, the rebuilding of buffers is likely to continue in a significant number of countries, even if at a slow pace. In view of the risks identified above, it would be advisable to make further efforts to rebuild policy buffers where growth remains robust, taking into account the need to preserve continuity in multi-year projects.
In the event of a downturn materializing, avoiding procyclical fiscal contraction would be essential. Many countries in the region would be able to manage a downturn, via a mix of fiscal, monetary, and exchange rate measures—the appropriate mix dependent on exchange rate arrangements, the ability to finance wider deficits domestically, and the inflation situation. But some countries might need assistance from development partners, including international financial institutions.
Background studies
The Regional Economic Outlook also contains two background studies. The first of these examines potential economic spillovers between Nigeria and South Africa, sub-Saharan Africa’s two largest economies, and the rest of the region. The study identifies some important trade, investment, and financial linkages between South Africa and other countries in the region, especially those which are members of the Southern African Development Community and the South African Customs Union.
Nigeria is an important export market only for a few of its close neighbors, with formal and informal trade transmitting price and policy shocks across borders. Nevertheless, financial linkages with countries further afield are growing as Nigeria-based banks expand throughout the region.
A second study analyzes the extent to which structural transformation—understood as a shift of workers from low to high average productivity activities and sectors—has taken place among sub-Saharan African countries during the last 15 years, a period of robust average growth. Most countries in the region have experienced some degree of structural transformation, albeit at different speeds and following different paths.
Depending on resource endowments, labor skills, and logistical and infrastructural features, some sub-Saharan African countries may find it easier to follow the Asian structural transformation path through low-wage manufacturing, whereas others may transform through services and still others through increases in productivity in agriculture.
