Africa’s Pulse: A look into the state of African economies from new World Bank report
Africa’s economic growth performance was mixed in the past year. Growth in resource-intensive economies was buoyed by stronger commodity prices and higher mining production, but fragility in a handful of sub-Saharan Africa is costing the region over half a percentage point of growth per year. These are some of the findings in the just released World Bank Africa’s Pulse April 2019 Report.
The edition, which is the 19th Africa’s Pulse, estimates GDP growth in 2018 at a lower-than-expected 2.3%, with a forecast to 2.8% in 2019, and notes that the three largest African economies—Nigeria, Angola and South Africa “play a big role in the region’s growth.”
“Three years past the crisis period, we should be seeing a more widespread pickup in growth; instead we have downgraded our estimates again for 2018,” said Gerard Kambou, World Bank Senior Economist for Africa. “Leaders in Sub-Saharan Africa have the opportunity to build stronger domestic policies to withstand global volatility – and now is the time to act.”
In Nigeria, growth reached 1.9 percent in 2018, up from 0.8 percent in 2017, reflecting a modest pick-up in the non-oil economy. South Africa came out of recession in the third quarter of 2018, but growth was subdued at 0.8 percent over the year, as policy uncertainty held back investment. Angola, the region’s third largest economy, remained in recession, with growth falling sharply as oil production stayed weak, the report reveals.
The report also looks at how fragility is holding back sub-Saharan Africa, and how the digital economy can help the continent move forward.
“The digital transformation can increase growth by nearly two percentage points per year and reduce poverty by nearly one percentage point per year in sub-Saharan Africa alone. This is a game-changer for Africa,” said Albert Zeufack, World Bank Chief Economist for Africa.
Mixed performance
Growth performance was mixed in 2018 across the rest of the continent. Growth in resource-intensive economies was buoyed by stronger commodity prices and higher mining production, according to the Pulse, but also benefited from higher agricultural production and more public investment in the necessary infrastructure to connect people and goods to markets.
Non-resource-intensive economies such as Kenya, Rwanda, Uganda, and several in the West African Economic and Monetary Union, including Benin and Côte d’Ivoire recorded solid economic growth in 2018.
Reform efforts in the Central African Economic and Monetary Community are beginning to bear fruit, although there are signs that reforms are slowing down in a few places. And non-resource-intensive economies such as Kenya, Rwanda, Uganda, and several in the West African Economic and Monetary Union, including Benin and Côte d’Ivoire recorded solid economic growth in 2018.
Debt and Fragility
The report also outlines issues which continue to hold back growth across the region—debt and fragility. It is not just the growing amount of debt, but also the type of debt that countries are taking on that is leading to widespread vulnerabilities.
Africa’s Pulse found that fragility in a handful of countries is costing sub-Saharan Africa over half a percentage point of growth per year. This adds up to 2.6 percentage points over 5 years.
By the end of 2018, nearly half of the countries in Sub-Saharan Africa covered were at high risk of debt distress or in debt distress.
“The drivers of fragility have evolved over time, and so too must the solutions,”said Cesar Calderon, Lead Economist and Lead author of the report. “Countries have a real opportunity to move from fragility to opportunity by cooperating across borders to tackle instability, violence, and climate change.”
External debt is shifting from traditional, concessional, publicly-guaranteed sources to more private, market-based, and expensive sources of finance, putting countries at risk. By the end of 2018, nearly half of the countries in Sub-Saharan Africa covered under the Low-Income Country Debt Sustainability Framework were at high risk of debt distress or in debt distress, more than double the number in 2013.
Low growth in just a handful of fragile countries costs the continent more than half a percentage point of growth per year, the report finds.
That is 2.6 percentage points over five years. The report recommends countries focus on building state capacity and strong institutions that secure peace and stability, as well as deliver better services for people to rebuild the social and economic foundation needed for a successful future.
“As the nature and the causes of fragility evolve, the approach to overcome it becomes more complex,” said Cesar Calderon, Lead Economist and lead author of the Pulse. “It increasingly requires collective solutions. Regional and sub-regional institutions are needed to address peace and security challenges as well as economic shocks that spill over national borders.”
Opportunities on the horizon
The report also highlights the opportunities on the horizon for Sub-Saharan Africa, including the digital revolution. The continent is at an important inflection point of demand for and support for the digital transformation, and the African Union recently endorsed the aspiration that every individual, business, and government across the African continent will be connected to the internet and can reap the benefits.
In Sub-Saharan Africa alone, the digital revolution can increase growth by nearly two percentage points per year and reduce poverty by nearly one percentage point per year.
This can pay huge dividends in terms of inclusive growth, innovation, job creation, service delivery, and poverty reduction in Africa.
Digital transformation could increase growth per capita by 1.5 percentage points per year and reduce the poverty headcount by .7 percentage points per year, according to the report.
In Sub-Saharan Africa alone, the digital revolution can increase growth by nearly two percentage points per year and reduce poverty by nearly one percentage point per year.
When paired with stronger investments in human capital, impacts across the African continent can be more than doubled. Impacts are greater if expansion of the digital economy is accompanied by regulations that create a vibrant business climate, skills that allow workers to access the jobs of the future, and accountable institutions that use the internet to empower citizens.
