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Prospects Blog: Growth prospects for Sub Saharan Africa remains strong

Global Macroeconomics Team's picture

Growth prospects for Sub Saharan Africa remains strong.

The recent release of the Global Economic Prospects – June 2011, observes growth in sub-Saharan Africa to have averaged 4.8% in 2010, up from 2% during the 2009 crisis year and is projected to close in on its pre-crisis average growth rate of about 5% in 2011.

However, with some 44 countries in the region, these averages mask a number of interesting observations.  If one excludes, South Africa, the largest economy in the region, growth was 6% for the rest of Sub Saharan Africa in 2010, similar to that of growth in the Latin American and Caribbean region, and higher than growth in the Middle East and North Africa, as well as in Europe and Central Asia.

With the new oil that came on stream, Congo Republic was the fastest growing economy in 2010 at 9.1%, in contrast the political stalemate in Madagascar kept growth at only 0.7% in 2010. Growth rates were in between these two extremes for the remainder of countries. Indeed, a third of countries grew between 2-4%, while another third had growth rates of at least 6%.

Among the fast growers in 2010 included resource rich countries such as Republic of Congo, Nigeria, Ghana and Tanzania. All of which attained growth rates of at least 7%. But the fastest growing economies were not limited to the resource rich countries; indeed both non-mineral nor oil-rich countries such as Rwanda and Ethiopia also attained growth rates of at least 7% in 2010. Across sub-regions growth was strongest in West Africa and East Africa and lagged behind in Central Africa and Southern Africa.


Given that the underlying dynamics driving growth in SSA remains unchanged, and the pick-up in growth from some of the larger economies that have lagged behind (South Africa and Angola) we project that by 2011, growth in SSA would have returned to its pre-crisis average of about 5% and that it would strengthen further to about 5.7% in 2012 and 2013, making it one of the fastest growing developing regions. 

Sources of Growth in SSA. Growth in SSA has been driven by developments on both the external and domestic front. On the external front, higher commodity prices and the recovery in the global economy has helped boost export receipts in SSA. Not only merchandise exports but also trade in services such as tourism arrivals and receipts in a number of tourism destinations in the regon. Real exports of goods and services are estimated to have risen by 8.3% in 2010.

But the growth story in Sub Saharan Africa is much more than that of higher commodity prices. Indeed, given the 9.5% increase in imports in 2010, the contribution of net exports to GDP growth in sub Saharan Africa was actually negative in 2010, implying strong domestic demand driving growth performance. 

When one considers several of the fast growing economies in Sub Saharan Africa, we observe double digit growth rates in the services sectors such as telecommunications, financial services and retail trade. In part this reflects sustained higher growth achieved over the past decade, which has supported higher incomes and resulted in increasing availability of discretionary spending, which has in turn boosted the demand for new services that were previously in accessible. Take the case of Nigeria. In Q3 2010, the contribution to GDP from the telecommunication sector, which accounts for only 3-4% of GDP was much higher than that of the oil sector which accounts for some 16% of GDP, thanks to the dynamic (34%) growth registered in the telecommunications sector! And strong growth, albeit from a low base, in retail activity is attracting investment interest, particularly from South African retail firms that have been busy opening up shopping malls across the region, but also from foreign interest, including Walmart, the world’s largest retailer, which is in the process of acquiring the South African retail giant Massmart that has operations in some 14 countries in the region. 

Risks to the Outlook Higher commodity prices in particular that of oil and food prices present a risk to the outlook. As regards oil prices it is important to make a distinction between the oil exporting countries in the region with that of the oil importing countries in the region. Obviously the downside risks are weighted against the oil importers in the region. By our own calculation, if oil prices rise above their March 2011 levels by $50, then this could shave up to one percentage points of current GDP projections.

Poor rains forecast for parts of sub-Saharan Africa (e.g. East Africa), could lead to increased food prices and derail the growth outlook because of the importance of agriculture in several countries. Poor rains affect not only the agricultural sector but also the production of electricity in some countries. All this will increase inflationary pressures in prices. Indeed some countries (e.g. Kenya) have increased interest rates to contain inflationary pressures.

Finally political upheaval, as already observed in parts of the Middle East and North Africa could curtail growth prospects. This is all the more important in 2011, as about a third of countries in sub-Saharan Africa are carrying out national elections.