‘Weak commodity prices may assail sub-Saharan economic growth’
In a twice-yearly World Bank Group analysis of the issues shaping Africa’s economic prospects released yesterday, average growth for Nigeria and the rest in the region is forecast to be around 4.7 per cent.
The bank said that the slower expansion is reflective of sub-Saharan Africa’s vulnerability to falling commodity prices, which is resulting in terms-of-trade shocks for most commodity-linked African countries.
According to the bank, 36 of the region’s 48 countries will experience a deterioration in their terms of trade – countries that are home to 80 per cent of the region’s population and 70 per cent of its economic activity.
“Overall, the initial terms-of-trade shock effect reflects a loss in the price of exports relative to imports of 18.3 per cent for the region. The decline in terms of trade is about 40 per cent for oil-exporting countries, with oil remaining the most important commodity traded in the region – oil is a top five export item in 18 countries and a top five import item for 15 countries.
“But the gains associated with lower fuel prices for net importers such as Botswana, South Africa and Zambia are also being partially offset by losses associated with declining international prices of nickel, iron-ore and copper. The report estimated that 14 countries are “highly vulnerable” to the fall in commodity prices, as measured by a terms-of-trade deterioration greater than 10 per cent.
The report however noted that “despite a marginal terms-of-trade improvement in South Africa, the beneficial effects of low oil prices on consumer purchasing power are being offset by higher fuel levies, a weaker rand, policy uncertainty and electricity shortages, which continue to hamper economic activity and export growth.
“Starting in 2016, however, growth should gradually pick up in the region as commodity prices partially recover and/or economies diversify, strengthening to 4.5 per cent in 2016 and 4.7 per cent in 2017. The uptick in growth will be underpinned by infrastructure investment and healthy private consumption buoyed by low oil prices.”
The bank said that are better-diversified and especially net oil importers, may even gain from this rut, most notably East Africa’s economic powerhouse, Kenya, and West Africa’s Senegal.
It stated: “Sub-Saharan Africa is a net exporter of primary commodities. Oil is the most important commodity traded in the region, followed by gold and natural gas. Over ninety percent of the total exports of eight major oil-exporting countries come from the three biggest exports of each country, which represent nearly 30 percent of their GDP.
“ But the recent price declines are not confined to oil, and Africa’s Pulse reveals that the prices of other commodities are now more closely correlated both with oil prices and with one-another.
“As a result, terms of trade are declining widely among most countries in the region. The 36 African countries with expected terms-of-trade deterioration are home to 80 per cent of the population and 70 per cent of the economic activity in the region”.