Weaker Growth in Sub-Saharan Africa Amid Deteriorating Global Conditions

Growth forecast lowest in six years

Headwinds from weak commodity prices,

tighter financing

Limited policy scope to counter drag on growth

While the business and macroeconomic environment has improved considerably over

the past decade or so, other factors that underpinned strong growth—particularly

high commodity prices and accommodative financing conditions—have become less

supportive. The prices of many commodities exported by the region have fallen by

around 40-60 percent in the past two years, and borrowing costs have risen amid

a reassessment of global risk in anticipation of a U.S. interest rate hike. In addition,

larger external and fiscal deficits weigh on some countries.

As a result, while growth in sub-Saharan Africa is still stronger than many other

regions, the IMF’s latest Regional Economic Outlook for Sub-Saharan Africa puts

growth at 3¾ percent this year, even lower than in 2009 in the aftermath

of the global financial crisis. The forecast for 2016 is slightly higher at 4¼

percent.

Variation across region

But despite the difficult overall picture, the report finds that there is considerable

variation across the region (see charts below). In most low-income countries, growth

is generally holding up, supported by infrastructure investment and private consumption.

Countries such as Cote d’Ivoire, Ethiopia, and Tanzania are expected to grow

at 7 percent or more this year and next. Other low-income countries, however are

feeling the pinch from commodity prices, even though cheaper oil has eased their

energy import bill.

Hardest hit are the region’s oil exporters as falling oil prices have drastically

reduced export revenue and forced a sharp fiscal adjustment. The oil producers account

for about half of the region’s GDP and include the largest producers, Nigeria

and Angola. Several middle-income countries, including Ghana, South Africa, and

Zambia, are also facing unfavorable conditions, ranging from weak commodity prices

to difficult financing conditions and electricity shortages.

Limited scope to counter drag on growth

Savings have been modest during the recent period of rapid growth, leaving limited

room to counter the drag on activity in the region or smooth the adjustment to the

recent shocks. Many countries now have weaker fiscal and external balances than

at the onset of the global financial crisis in 2008. And while in many cases this

situation reflects countries’ efforts to address large infrastructure needs,

it...