Voice of America (Washington, DC)

27 June 2014

African Economies Expected to Continue to Grow

Good news for Africa, say the experts. Growth is healthy and broad-based, fueled in part by infrastructure spending, domestic demand and trade.

"A lot of people think growth in Africa is only driven by mineral wealth or oil-exporting countries, but we find that even countries that are not resource rich are still growing.... ," said Angela Lusigi, an economist and policy advisor for the Regional Bureau for Africa in the United Nations Development Program. "This is mainly because of their agricultural sector and growth in services [including tourism] and a little in manufacturing."

Trade

The report found that Africa's main foreign commercial partner is Europe, which accounted for nearly 40 percent of African trade, while 25 percent was with Asia and about 12 percent with North America.

This year's African Economic Outlook notes that African countries traded $81 million worth of goods among themselves in 2012, and that such trade is growing faster than the continent's exports to the rest of the world. In the decade ending in 2010, inter-African trade experienced over 13 percent annual growth.

Much of that trade is in light manufacturing of such goods as textiles, clothing, leather, building material, farm implements and wood products.

Lusigi says there's also strong domestic demand for manufactured goods, including television sets, phones and other mobile technology. She says many of these products can be made in Africa.

Regional performance

According to the report, two regions - East and West Africa -- are leading the economic expansion, with over 6 percent growth.

Ethiopia, with a nearly 10 percent growth rate, leads the pack in East Africa. Tanzania, Uganda, and Rwanda are predicted to achieve rates of between 6.5 percent and 7.5 percent -- thanks in large part to agriculture, industry and services. Kenya, because of the financial sector and communications technology, is expected to reach nearly 6 percent.

Economists expect vigorous growth in West Africa as well, with a rate of over 7 percent over the next two years. While oil is an important source of revenue, other sectors are also showing promise. Nigeria is supported by agriculture, trade and information, and communications technology. Manufacturing is important to Ghana, and Sierra Leone is the fastest growing country in the region because of its iron ore exports, agriculture and construction.

In Southern Africa, Angola, Mozambique and Zambia have grown between 5 percent and 7 percent. With labor unrest and weak foreign export markets, South African growth is expected to be a bit slower, reaching nearly 3 percent over the next two years.

Reasons behind growth

The report attributes growth in part to lower inflation, particularly in energy and food prices, and to prudent macroeconomic policies by African nations. They include efforts to reduce deficits by cutting spending, or limiting growth, and improving tax collection.

The report notes the country with the most impressive record of fiscal consolidation is Zambia, which has nearly balanced a budget that just two years ago had a deficit of 11 percent of GDP. Other countries, including Egypt, Mozambique, Angola, and Cameroon, have met the economic downturn in recent years with greater spending and higher deficits. The funds that had been saved for emergencies helped provide a social safety net, including funds for health and education services.

The report urges these countries to restore the funds that provided a buffer against recession, and also to create policies that ensure that everyone benefits from growth.

"The report says the underlying macroeconomic framework is in place, " said Luigi. A lot of countries are working to balance their budgets, they do not yet have unstainable debt, they are managing their exchange rate, and right now a lot of countries are putting their focus in borrowing to investing in infrastructure, and this is happening not just in oil-exporting countries but even those not considered to be resource rich.

"There's been a lot of change where a lot of countries have stable macro and fiscal policies, and the next step is how to translate this stable framework into inclusive growth that touches the lives of people - because we are seeing a lot of inequality. We have to see how growth can impact all people, not just one group."

External Inflows

The report says external inflows of cash to Africa have remained stable or are growing.

Official development assistance (ODA) - estimated to be about $55 billion US -- remains an important life line for poor countries that lack sufficient foreign direct investment.

Remittances from Africans abroad have remained healthy. They have rebounded since the economic downturn in 2009 and are expected to reach about $67 billion US this year. Remittances are now the largest single external flow of funds to the continent and an important contributor to education and health care expenses.

The report quotes World Bank figures showing countries with the largest increases in diaspora funds are Sudan, Uganda, Burkina Faso, and Niger. It notes that funding from the diaspora continues to play an import contributor to GDP in the Gambia, Lethoso, Liberia and Senegal.

Following close behind revenues from remittances is foreign direct investment, currently at nearly $40 billion. The report predicts that with sustained interest by investors in manufacturing and services, FDI could be more than $54 billion over the next three years.

Henri-Bernard Solignac Lecompte, the head of the Africa Desk at the OECD Development Center in Paris, said " We also see a rise in greenfield FDI in some light manufacturing, some agro-processing and market-seeking investments of people who are putting together [market-seeking investments]. So, you have [retailers like the South African firm] Massmart investing in Eastern Africa, signally that investors are increasingly recognizing Africa as not just a repository of commodities, but also as a market.

The report says a decade of strong growth has reduced poverty in sub-Saharan Africa - with the number of people living on less than $1.25 per day, falling from nearly 60 percent to just below 50 percent.

Continued growth, it says, depends upon the ability of countries to participate in so-called global value chains - as South Africa has done with manufacturing car parts. It also depends on creating an environment that attracts investors and a work force with the skills that contribute to global manufacturing.

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