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Has the African Economic Growth Stalled? Guest post by Peter Stein, CEO of Stein Brothers AB

southafrican-currency非洲经济发展已止步不前? In the latest World Economic Outlook published on October 4th, 2016, by the International Monetary Fund, it has lowered its growth forecast for the US and other advanced economies as a whole to 1.6%, from 2.2% predicted in July. IMF is warning that Brexit and rising protectionism are dragging on a world economy. However, a rebound in emerging and developing economies, which the IMF now expects to grow as a group by 4.2% this year, could offset downward trends in advanced economies and make the global economy grow at 3.1% this year.

For Sub-Saharan Africa this latest report paints a highly mixed picture. Last year, the region’s average growth rate was 3.4%, yet for 2016 the IMF predicts a meager growth rate of 1.4%, and for 2017 a slight rebound to 2.9%. Sub-Saharan Africa has not experienced such a low growth rate since the early 1990s.

Bearing in mind that the continent has an average annual population growth of 2.5%, the current average growth rates would barely translate into higher GDP per capita. The current situation stands in sharp contrast to the last 10-15 years, when the continent enjoyed average growth rates above 5% per annum, and was the second fastest growing region, second only to developing Asia.

During the late 1990’s, many African countries changed course and achieved substantial gains in income, reductions in poverty, and improvements in health and education. But previous optimism has given away to a new wave of pessimism. Commodity prices have dropped, costs of borrowing have increased, trade in manufacturing has slowed and Chinese growth has moderated.

Thus, economic growth has stalled in many Sub-Saharan African countries, led by Nigeria, where production was disrupted by shortages of foreign exchange, militant activity in the Niger River Delta, and electricity blackouts. Momentum in South Africa is flat, despite the improvements in the external environment—notably stabilization in China.

Is Africa’s surge of progress over? Was it high commodity prices alone that drove recent advances? Will this be the end of the African leap of faith towards a new age of venture and innovation?

The reality, however, is much more complex. Firstly, it needs to be said that the lower average growth rates are mainly due to the fact that economic growth is low in South Africa, Nigeria and Angola – and these 3 countries account for over 60% of the regional GDP.

Even in the latest World Economic Outlook, more than ten African countries are predicted to enjoy growth rates above 5%. In West Africa, Senegal and the Ivory Coast are growing fast; and in East Africa, Ethiopia, Kenya, Tanzania, Rwanda and Uganda have growth rates around 5% or higher. Thus, many African countries will continue to be among the world’s fast growers.

Even if growth is likely to be slow in the coming years, the outlook for continued broad progress is solid for many parts of the region. Two decades of high growth has made the African labour force better educated, and infrastructure more modern.

At the same time, a much less benign global economy will demand a policy reset in many African countries. Future development will depend to an even greater extent on the quality of domestic economic institutions and political governance.

Countries that will continue to reform their economic structures, open up to trade, improve the domestic business environment and identify growth models that are less depending on export of raw material will be able to forge ahead.

peter-stein-portraitPeter Stein is a Swedish economist and CEO of Stein Brothers AB. Stein is a noted expert on the economies of Africa and a frequent commentator on African affairs in international media. He is a CIV international community member.

For more insights on economic development in Sub-Saharan Africa, please enjoy reading “Crafting a Silicon Savannah” by Wilfred Mutua Mworia of Afrinnovator (Nairobi, Kenya), recently published in CVR Issue #4; or follow the research on Building Culture for Technology Entrepreneurship in Developing Contexts by Brett Anitra Gilbert, funded by a CIV grant.

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