The growth forecast for Sub-Saharan Africa has been cut by The World Bank, after the international financial institution backtracked from its previous growth projection for the African continent.
The World Bank had initially announced a growth forecast of 3.3 percent for Sub-Saharan Africa in 2019. But on Monday, the forecast was retracted, with The World Bank stating that its growth projection for Africa is now 2.8 percent.
Also, the bank cut its 2018 growth estimate for the regional economy to 2.3 per cent from last October’s predicted 2.7 percent growth.
Why the growth cut: The international financial institution said a decline in industrial production and a trade dispute between China and the United States of America will take a toll on Africa’s economic growth.
Also, a decade of rapid growth for the region was cut short by the commodity price slump of 2015.
Why it matters: The new projection means the economic growth will fail to keep up with population growth. This will make it the fourth year in a row that such will be recorded after slipping to below 3 percent in 2015.
“THE SLOWER-THAN-EXPECTED OVERALL GROWTH REFLECTS ONGOING GLOBAL UNCERTAINTY, BUT INCREASINGLY COMES FROM DOMESTIC MACROECONOMIC INSTABILITY INCLUDING POORLY MANAGED DEBT, INFLATION AND DEFICITS.” -TWB
Focus on Three of Africa’s largest economy
About 60 percent of sub-Saharan Africa’s annual economic output is from Nigeria, South Africa and Angola. But their contribution to the growth momentum has been hampered by various challenges. According to The World Bank:
“THIS DOWNWARD REVISION REFLECTS SLOWER GROWTH IN NIGERIA AND ANGOLA, DUE TO CHALLENGES IN THE OIL SECTOR, AND SUBDUED INVESTMENT GROWTH IN SOUTH AFRICA, DUE TO LOW BUSINESS CONFIDENCE.”
However, due to a modest pick-up in the non-oil sector, The World Bank reported that Nigeria’s economy grew from 0.8 percent in 2017, to an estimated 1.9 percent in 2018.
For South Africa, policy uncertainty in the country has left investors wary despite coming out of recession in the third quarter of last year. But Angola remains in recession due to weak oil production.
Meanwhile, countries like Zambia and Liberia have found it difficult to lure investors considering their High inflation and heavy debt loads, and this has affected their growth prospects.
But for the likes of Rwanda, Uganda, Kenya, Benin, and Ivory Coast whose economies do not depend on commodities, growth remains strong.
World Bank is worried by the rate of debt in Africa
The World Bank says countries are being exposed to vulnerabilities because of the region’s debt rate and the type of borrowing that countries are undertaking.
“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.”
World proffers solution to fast-track growth
The World Bank has urged African countries to adopt the use of information technology more effectively in its operations. According to Albert Zeufack, the chief economist for Africa at the bank, this could help boost annual growth by nearly two percent. He said it will be a game-changer for Africa.