Booming Africa
Jan 14th 2008
From The Economist Intelligence Unit ViewsWire
African growth is set to rise a record 6.4%
Provided commodity prices remain firm Sub-Saharan growth should buck the global trend in 2008, with output rising a record 6.4%.
Gloomy forecasts for the world economy—mostly attributable to the after-shock of the US sub-prime financial crisis—have yet to dent prospects for developing economies, and especially Sub-Saharan Africa (SSA). The World Bank believes that “strong fundamentals” in emerging markets have helped cushion the impact of the US slowdown, and in its latest forecast for the world economy—contained in its Global Economic Prospects report, published in January—the Bank sees only a modest, short-lived slowdown in global growth to 3.3% from 3.6% in 2007.
The Bank’s forecast for 2008 shows global and developing-world growth slowing marginally, but in SSA GDP expansion is expected to accelerate again this year before slowing modestly in 2009. Commodity prices will be crucial, with the Bank pointing out that SSA is “one of few regions” where there has been a strong supply response to higher oil prices.
Buoyant growth over the medium term
The Bank expects African growth to remain buoyant over the medium term, with the main downside risk being a larger-than-expected slowdown in high-income-country growth and import demand. This could result from continuing difficulties in financial markets or weaker Asian growth, as well as from intensified inflationary pressures arising from higher energy prices and the recent surge in food prices.
The World Bank also warns of socio-political tensions in a number of countries, pinpointing Côte d’Ivoire, the Democratic Republic of Congo, Congo (Brazzaville), Guinea, Guinea-Bissau, Somalia and Togo. Surprisingly, Zimbabwe and Kenya are omitted from this list. In Nigeria, risks associated with the activities of militant groups in the Niger Delta remain “substantial”, according to the Bank, which also notes that oil production is currently running some 25% below capacity of 2.9m barrels/day.
MDG poverty target will not be met
The long-term forecast—to 2030—is upbeat, with the Bank predicting that growth in income per head, which is averaging 3% a year in the current decade, should rise modestly to 3.2-3.4% annually in subsequent decades. This is a major improvement over the 1980s and 1990s, when African incomes per head declined.
The headcount of people living in poverty—that is, on less than US$1 a day—has been revised downwards from 11.8% of the world population to 10.2%. The global total is forecast to halve to 624m by 2015 (from 1.25bn in 1990). Almost half (290m) of those living in poverty will be in SSA, up from 240m in 1990, but because population is growing rapidly the percentage headcount in the region will fall from 47% to 31%. The most dramatic decline has been in China, where the ratio is forecast to fall from 33% to just 2% in 2015.
While a number of African countries will achieve the Millennium Development Goal (MDG) of halving poverty by 2015, the region as a whole will miss it by a sizeable margin of some seven percentage points, and even this target will be missed if agricultural productivity continues to lag global trends.
Farm productivity is the key
One of the key determinants of poverty reduction in Africa will be agricultural productivity. The Bank’s main scenario assumes an annual increase in global farm productivity of 2.5%, but an alternative scenario assumes zero productivity growth in SSA and South Asia; under this scenario the Sub-Saharan poverty headcount in 2015 will be five percentage points higher, at 36%. This is because agricultural producer prices would rise 6% annually, resulting in a loss of competitiveness both domestically and in export markets. Agricultural imports would be 40% higher in 2015 than under the baseline scenario, while exports would fall 30%. Poverty will increase because of lower agricultural productivity, higher prices and lower wages for unskilled workers.
