Africa still the rising continent

 AFRICA IS STILL POSTING ROBUST ECONOMIC GROWTH. However, the South Africa economy is the drag on an otherwise robust economic growth narrative in Sub Saharan Africa, says the Bretton Woods institutions. In two separate reports released over the last two days, the World Bank and IMF agree that South Africa’s economic growth is cirrhotic and a drag on SSA growth record.

Sub-Saharan Africa, including South Africa grew by 4.7 per cent last year. “Excluding South Africa, average output growth for the rest of the region was 6.1%, second only to developing Southeast Asia and Pacific at 7.2% and well above the global GDP growth rate at 2.4%.South Africa grew by only 1.9% in 2013 says%.” Africa’s Pulse.    

The IMF has lowered its growth outlook for the South African economy in 2014 to 2.3%, down from a previous forecast of 2.8%. Similarly, the 2015 outlook was lowered to 2.7% from over 3.0%.

The Bretton woods institutions blame “tense industrial relations in the mining sector, tight electricity supply, anemic private investment, and weak consumer and investor confidence for South Africa’s woes.”

 South Africa has slipped from the top perch as Africa’s largest economy, giving way to Nigeria. Nigeria’s rebased GDP stands at US550 billion. The IMF noted that Nigerian growth had remained strong, owing to relatively high oil prices and despite security problems in the north and large-scale oil theft in the first half of 2013.

It also indicated that, while South Africa’s growth should rise moderately, driven by improvements in external demand, the risks were to the downside.

The country was particularly exposed to a reversal of portfolio flows should global financial conditions tighten further.

For its Part Africa’s Pulse Published by the World Bank shows economic growth rising from 4.7% in 2013 to 5.2% in 2014. It will rise to 5.5 Per cent in 2015, says the Pulse.The growth is broad based driven by strong public and private investment demand and robust household consumption.  Other drivers are: the rise in commodity prices and the surge of foreign capital.

Sub-Saharan Africa has registered a sustained robust economic growth for close to two decades. The continent even shrugged off five years of prolonged weakness in the global economy, and continued to register relatively vigorous growth.

While the number commodities exported has not changed significantly, she has made substantial progress in diversifying their trading partners, says. “Over the last decade, exports to emerging markets such as the BRICs—Brazil, Russia, India, China—have grown robustly, primarily due to the prolonged boom in commodities demand. The BRICs received only 9%of Sub-Saharan Africa’s exports in 2000 but accounted for 34% of total exports a decade later,” it adds.

Across the region there has been a rapid growth in foreign direct investment (FDI). Two investment trends are central to driving this expansion—the extended commodities boom brought about by the unprecedented scale of development in Asia, and the massive expansion of moving international trade activities offshore. The new wave of FDI not only delivers investment and employment but also opens up new opportunities through deeper global trade integration.

Although the region continues to grow faster than many economies around the world, growth in Africa is not inclusive when viewed in terms of the population demographic. Resource-rich countries are growing much faster at 7% (median rate) than the non-resource rich countries at 1.6%. Although fragile and conflict countries are also seeing growth, the rate is much lower than countries who have not suffered any conflict.

Sub-Saharan Africa’s exports grew at a robust pace, driven by the region’s natural resources. During 1995-2012, the region’s total exports increased from $68 billion to over $400 billion. Most of this increase came from natural resources export. For example, petroleum, minerals, and metal exports ballooned from $38 billion to $300 billion during this period.

While high commodity prices have helped the region in recent years, the heavy reliance on resource-based exports also makes the region highly vulnerable to the shocks in commodity prices.

Export diversification has been limited, mirroring sectoral shifts in the region’s economies, but there has been substantial progress in diversifying trading partners. Strong growth in countries in the region have characteristics that are associated to the structure of production, advances in structural reforms, the influence of the country to the world economy, or sound macroeconomic frameworks.

The challenge for many African countries, particularly oil exporters, is to diversify their exports. Oil-exporting countries rely heavily on a single commodity as their revenue source. For example, Angola, Chad, Equatorial Guinea, Gabon and Nigeria received, on average, more than 92% of their export earnings from oil during 2010-13.

Although, the export revenue share from minerals and metals may not be as high as that from oil, it is still high for some nonoil resource-rich countries—Botswana, Guinea, Mauritania, and Sierra Leone—with earnings more than 50%of their revenue from natural resources.

Some countries have successfuly diversified exports. An example is Tanzania. The country saw major increases in and diversification of output and exports. The production and export of traditional agricultural cash crops (such as cashew nuts, coffee, cotton, tea, sisal, and tobacco) declined considerably in importance. The geographic distribution of Tanzania’s exports also changed considerably over the last decade. Exports to the EU fell, while regional trade, especially with the East African Community (EAC) and South Africa, increased.

There are broad areas in which Sub-Saharan Africa governments need to invest to ensure that growth continues and is shared among entire populations. The report suggests that good governance and institutions; investing in the people of Africa—especially the youth; promoting infrastructure across the region; reducing barriers to trade and investment; and making sure there are adequate services and infrastructure for the rapidly expanding urbanization of African cities and secondary cities are key to maintaining and sharing growth within the region.

Globalization of services is a potential important source of growth for the Africa region. Several favorable trends that support this view include: services trade is the fastest-growing sector within global trade; the share of modern services is rising; and the share of developing countries in world service exports has been rising. Technology and outsourcing are enabling traditional services to overcome their old constraints such as physical and geographic proximity. Modern services, such as software development, call centers, and outsourced business processes, can be traded like value-added, manufactured products, enabling developing countries that focus on such services, innovation, and technology to leapfrog from agriculture into manufacturing.

The question that the region faces is, “Has Sub-Saharan Africa tapped this potential?” The region’s service sector which totals $50 billion, trails all other developing regions; however, it is expanding annually at about 12%, on average. Traditional services such as retail trade, hotels, restaurants, and public administration have recorded a decline from 73% of total services in 2005 to less than 64%in 2012, while modern services in the region have increased by over 10 percentage points from just over 26%of total services to about 36% over the same period.

In some countries such as Mauritius, Rwanda, and Tanzania, modern services recorded compound annual growth rates of over 10%between 2005 and 2012, with Rwanda starting from a low base of less than $40 million in services exported in 2005 to over twice that amount at almost $85 million by 2012. In both Mauritius and Rwanda, rapid expansion in modern services is a result of increased activity in tradable business and financial services. 

Over 60% of those employed in large companies in Mauritius work in the service sector, which offers more employment opportunities than either agriculture or manufacturing. While these countries have experienced the fastest increase in modern services, countries like Kenya are also emerging as countries where modern services are becoming drivers of growth and development.