Africa's economic expansion Faces Downside Risks
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Growth in sub-Saharan Africa (SSA) is expected to average about 6½ percent again this year, driven by oil exporters (see table). Although the region's economic expansion is expected to continue, risks are tilted to the downside. The external environment has become less favorable-with growth slowing in advanced economies, higher oil prices, and unsettled global financial markets-which could hurt growth in SSA.
The IMF's Sub-Saharan Africa Regional Economic Outlook-Spring 2008 (REO) says that, in light of these risks, there is about a one-in-five chance that the region's growth will drop to less than 5 percent in 2008.
Growth in SSA's oil exporters is expected to accelerate to about 10 percent this year, underpinned by production at oil facilities coming onstream in Nigeria and Angola and a new liquefied natural gas plant in Equatorial Guinea. Higher income and wealth are expected to be the main drivers of domestic demand in these countries.
In countries that are not oil exporters, the picture is mixed, with average growth a bit lower than last year. Growth in the middle-income countries is expected to register only about 4 percent this year and, in low-income countries, about 6 percent. In the fragile countries, buoyed by a continued recovery in investment, growth should pick up to 5 percent in 2008, up from 3¼ percent in 2007.
Inflation in the region should increase slightly to about 8½ percent if macroeconomic policies hold firm. Inflationary pressures arise mainly from oil prices, which are expected to increase by about 35 percent this year, and higher food prices.
A pronounced global slowdown would weaken the prices of non-oil commodities and represent a large shock for SSA. Higher oil prices would reduce domestic demand, boost headline inflation, and worsen the current account and net foreign asset positions of net oil importers. Finally, less favorable financial conditions would reduce external financing and hurt growth.
SSA also faces significant internal risks. Conflicts still ravage the Darfur region of Sudan and the Horn of Africa. Moreover, conditions remain fragile in the Democratic Republic of Congo, and post- election violence in Kenya has undermined investor confidence and tourism and could delay donor support and stall structural reforms needed to sustain recent growth. The conflicts in Darfur and Kenya are...
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