An excerpt from the International Monetary Fund's October 2013 World Economic Outlook:
Growth in sub-Saharan Africa remained robust in 2012-13 and is expected to accelerate somewhat in 2014, reflecting strong domestic demand in most of the region. Nevertheless, spillovers from sluggish external demand, reversal of capital flows, and declines in commodity prices are contributing to somewhat weaker growth prospects in many countries relative to the April 2013 WEO. Policies should aim to rebuild room for policy maneuvering where it has been eroded, and more broadly to mobilize revenue to address social and investment needs. To achieve sustainable and inclusive growth in the medium term, governments should deepen structural reforms and give priority to infrastructure investment and social spending.
Activity in sub-Saharan Africa remained strong in the beginning of 2013, although marginally down from 2012, supported in most countries by domestic demand. Growth was particularly strong in low-income and fragile states, with the notable exceptions of Mali and Guinea-Bissau, which were affected by internal civil conflicts. Angola benefited from a recovery in oil production. In Nigeria, still high oil prices underpinned strong growth, notwithstanding temporary downdrafts from security problems in the north and oil theft. In Ethiopia, declining coffee prices and supply bottlenecks slowed growth slightly from a very high level. However, South Africa's growth slowed further, in large part due to tense industrial relations, anemic private investment, and weaker consumption growth, the latter affected by slowing disposable income growth and weakening consumer confidence. With a few exceptions, inflation remained broadly stable in the region.
Recent global financial market volatility has affected several economies in the region, although most low- income countries experienced little impact given their limited links with global financial markets. Among frontier markets, Nigeria's currency weakened against the U.S. dollar at the peak of the volatility, although financial conditions have since stabilized. In South Africa, the currency suffered a steep decline, bond spreads widened, and equity prices fell due to external factors combined with domestic economic vulnerabilities. However, with inflows returning during July and August, by early September South African asset prices appeared to be stabilizing.
Growth is projected to increase from about 5 percent in both 2012 and 2013 to 6 percent in 2014. This represents a more than ½ percentage point downward revision for 2013 relative to the April 2013 WEO for the whole region, and close to a half percentage point downward revision for 2014 for the middle- income countries:
- In Angola, the revisions reflect delays in budget execution. In Nigeria, among other factors, they mainly reflect reduced oil production.
- In South Africa, growth is forecast to improve gradually in 2014 and beyond as global growth improves and infrastructure bottlenecks are alleviated. However, the tighter financing environment, still weak investor and consumer confidence, continued tense industrial relations, policy uncertainty, and elevated household debt will weigh on economic performance.
- Elsewhere, growth is forecast to remain fairly robust, driven by investment in infrastructure, energy, and natural resources projects, as well as increased output from projects coming onstream (Ghana, Mozambique, Niger, Sierra Leone). However, the recent weakness in international commodity prices may delay mining investment in a few countries (Guinea). Medium-term growth in some resource exporters will also be affected by the Chinese economy's slower growth trajectory.
Inflation is expected to decline further in 2013 through much of the region, helped by some moderate global food prices and prudent monetary policies. However, current account balances are projected to continue to weaken, including because of lower global commodity prices (for example, Burkina Faso and Nigeria) and continued FDI-financed investment in infrastructure and natural resources (Mozambique, Sierra Leone).
The main threats to the outlook are a global economic downturn or a further deceleration of growth in China or other major emerging markets that could weaken exports through lower commodity prices or reduced inflows of aid and FDI. A sharp or protracted decline in oil and commodity prices would affect commodity exporters that do not yet have sufficient fiscal buffers (Angola, Nigeria) and could affect planned or ongoing resource development projects (Ghana, Guinea, Liberia). South Africa is also vulnerable to further slowdowns or sudden stops in capital inflows, which could be triggered by global repricing of risk or domestic shocks, especially escalating industrial tensions. Some frontier markets, such as Ghana and Nigeria, could also be vulnerable to such slowdowns of private financial flows. Domestic risk from further social and political unrest (for example, in the Sahel and Central African Republic) and further security problems in northern Nigeria might also adversely affect neighboring countries. Given the significance of subsistence agriculture, lack of rain can also present the risk of food insecurity and generate price increases in various pockets of the region. Insufficient capacity in electricity generation could be an additional drag on growth in a large number of countries.
Macroeconomic policies should generally remain focused on rebuilding buffers where these have been depleted and on keeping inflation under control. Revenue mobilization is an important objective in low-income countries more generally, where it can help address social and investment needs. Related to this, it will also be crucial to prioritize capital and social spending while continuing to improve project selection and execution capacity. Although debt cancellation under the Heavily Indebted Poor Country and Multilateral Debt Relief Initiatives has improved overall debt sustainability, continued prudence is needed to keep debt levels under control, especially where it has increased recently (for example, Cape Verde and Senegal). Where inflation remains relatively high, tight monetary policies are also warranted (Angola, Tanzania). In some oil-exporting countries (Angola), steps need to be taken to improve transparency and public control over the management of oil revenue. South Africa needs decisive progress in implementing structural reforms to strengthen education and the effectiveness of government services, ease infrastructure bottlenecks, and increase product market competition and labor market flexibility.
In the medium term, all countries in the region will need to step up their efforts to promote sustainable and inclusive growth by investing in physical and human capital, deepening financial sectors, promoting agriculture, improving the business climate, and encouraging economic diversification. In many countries there is scope for expanding the funding of priority expenditures by broadening the tax base or reducing energy subsidies (for example, Cameroon and Nigeria).