Africa’s Continuous Instability Led to Her Slow Growth Performance

Africa continued to experience regional and global instability in 2016, resulting in a further slowdown in growth performance according to the African Economic Outlook (AEO) 2017.

This notwithstanding, the outlook for the medium term is positive.

The decline in economic growth posted in 2016 is attributed to a number of factors including 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.

The report shows that the continent’s performance was uneven in 2016 in regard to economic, social and governance indicators, but prospects are favorable for 2017 and 2018.

While 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 coordinated policies were able to better withstand shocks.

The report disclosed that in 2017 and 2018, Africa will benefit from commodity prices which started to rise in the latter part of 2016, increasing private demand including in domestic markets, sound macroeconomic policy management now entrenched in many countries, a generally improving and favorable 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.

The index of commodity prices was more than a quarter higher at the end of 2016 relative to the same period in 2015. Countries with more predictable policies and buffers should therefore be able to weather the storm in the wake of destabilizing external imbalances.

Total external flows are expected to reach USD 179.7 billion in 2017, 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 USD57.5billion 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 percent 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 mobilize finance and to spur local development and entrepreneurship.

Despite significant efforts to increase fiscal revenues, these still fall short of Africa’s financing needs. Africa has enjoyed advances in trade and regional integration, but the volume of intra-Africa trade remains low. Over the past two decades, the value of trade between Africa and the world has quadrupled.

Today the continent’s trading partners are also more geographically diverse, and regional co-operation is building momentum. This is because African countries have adopted more open policies, invested in infrastructure and continued to pursue regional integration.

These achievements ease business by reducing the costs and time required to move goods and services within countries and across borders; they also increase the continent’s appeal as a partner in global trade.

The report suggested that Africa need to diversify its exports to reduce exposure to commodity price shocks, Second, tap the capacity of intra-Africa trade better and that governments should now focus on moving regional integration initiatives forward.

Eighteen 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.

By harnessing better education, skills and health, engaging the youth and women, and promoting sustainable use of environmental resources, Africa can better respect its commitments to the Sustainable Development Goals and Agenda 2063.

Promoting industrialization is back on Africa’s economic policy agenda, with renewed impetus and vigor. Industrialization in 21st century Africa calls for innovative strategies embracing all the potential of its 54 countries.