Africa’s economy recovering despite slow growth

Mazino Dickson, Abuja

Africa is expected to achieve positive economic growth, despite the negative regional and global economic challenges in 2016, which resulted in a reduction in growth performance.

These facts were revealed in the latest African economic outlook 2017 made public.

The report blamed Africa’s slow growth on low commodity prices, a sluggish performance in the global economy, a gradual deceleration in China’s growth and second-order effects of the Arab Spring, amplified by the prolonged conflict in Libya.

Although Africa’s net commodity exporters faced a difficult year, the majority of the continent’s non-commodity exporting countries continued to grow, consolidating previous years’ gains. Fiscal, monetary and exchange rate policies varied across the continent. Countries with co-ordinated policies were able to better withstand shocks.

But for the years 2017 and 2018, Africa is expected to benefit from rising commodity prices, increasing private demand including in domestic markets, sound macroeconomic policy management now entrenched in many countries, a generally improving and favourable business environment, and a more diversified economic structure, particularly towards the services sector and light manufacturing.

Although current account deficits are expected to persist in 2017, they will be narrower compared to 2016, if the recent rise in commodity prices continues.

In 2017, total external flows are expected to reach USD 179.7 billion, up from USD 177.7 billion in 2016, with foreign direct investment (FDI) and remittances remaining Africa’s most important external financial sources.

Total FDI is projected to be USD 57.5 billion thanks to inflows from the Far and Middle East. Investments are diversifying into consumer goods and services, such as financial services and information and telecommunications.

Remittances are projected to increase to USD 66.2 billion in 2017, 2.4% higher than the previous year. While more and better aid will remain crucial for low-income and fragile economies, private flows will play an increasingly important role to mobilise finance and to spur local development and entrepreneurship.

Despite significant efforts to increase fiscal revenues, these still fall short of Africa’s financing needs.

Human development

So far Eighteen (18) African countries have achieved medium to high human development, and the share of people living in poverty is falling. However, progress in human development is slow and uneven. Employment creation and entrepreneurship can help in reducing poverty.

Governments can achieve these by addressing barriers to entrepreneurship such as informality, fragility, and constrained business opportunities for the youth and women.

Industrialisation

The report commended African countries for bringing industrialization back on the front burner of development policies, with half of them instituting strategies for industrial development which aim to create labour-intensive industries to enhance job growth. However, the report noted that these industrial plans often do not address the needs of firms that have high growth potential.

It therefore urged African nations to promote innovation; supporting entrepreneurs, small and medium enterprises, as well as start-ups with high potentials to compliment large-scale industries; and finally encourage the emergence of green industries that are environmentally friendly.

The report concluded by advising African governments to strengthen skills, there is need for public policies that prioritise formal education, apprenticeships, vocational training and managerial capabilities in order to meet labour market needs.

It also called for policies that support business clusters which would help raise the productivity and growth of firms, including smaller ones. It was also noted that financial market policies could increase firms’ access to innovative and tailored sources of finance.