Economic experts are predicting slower economic growth African nations, including Nigeria and South Africa. According to Bloomberg, these countries are faced with mounting economic risks. These risks stem from downturn in commodity prices, power shortages, political instability and slowdown in China’s economic growth as well as the prospect of higher United States interest rates.
These, perhaps, was the reason why the International Monetary Fund (IMF) lowered its 2015 growth outlook for sub-Saharan Africa from 6.75 percent to 4.5 percent.
The Bloomberg said that sustaining Africa’s growth is going to prove increasingly challenging. Bloomberg made this claim as government leaders, policy makers and executives from companies met at the World Economic Forum in Cape Town, South Africa on Wednesday, June 3, for three days on how to build on Africa’s progress. The talks will focus on how to redistribute wealth more evenly in a region where 585 million people live in poverty.
Since 2000, rising prices of oil and other commodities helped to more than triple the size of sub-Saharan Africa’s economy. However, a slump in international commodity prices, which has forced the price of Brent crude to go down by 40 per cent over the past year and copper has fallen 13 per cent. African nations are now increasingly relying on consumer spending and infrastructure expenditure to drive their economies.
“Domestic demand has continued to boost growth in many countries while external demand has remained mostly subdued because of flagging export markets,” African Development Bank said in its May 25 report. “So far, African economies have been relatively resilient to the sharp fall of international commodity prices,” the bank said.
It added that “if commodity prices remain low or decline further, growth in resource-rich countries might slow down as governments need to cut spending.”
Africa attracted $128bnn in foreign direct investment last year, up from $52.6bn the year before, even as the number of projects fell by 8.4 per cent, accounting firm Ernst & Young said in its annual Africa attractiveness survey released in Cape Town on Tuesday.
Forty-four per cent of the spending was on projects in the real estate, hospitality and construction industries, while oil, natural gas and coal accounted for 25 per cent.
Other issues militating against economic growth in the continent include Ebola virus outbreak in West Africa, Islamist militant insurgencies in Nigeria and Kenya and political upheavals in countries such as the Central African Republic and South Sudan.
According to Ernest & Young, although tremendous progress has been made over the past 15 years, Africa needs to take “deliberate and urgent choices are required to raise levels of productivity and competitiveness, accelerate structural transformation and make the shift toward an inclusive, sustainable growth path.”
An EY survey of more than 500 business executives in 30 countries identified Africa’s political instability, corruption, poor security, lack of infrastructure and a scarcity of skilled labour as the biggest deterrents to investors.
For John Mackie, head of Johannesburg-based Stanlib Asset Management’s Pan African Investment portfolios, investing in the continent would be a long term affair. “It’s a patience game. It’s going to take time for the continent to realise its full potential,” he said.
Similarly, Mustafa Chike-Obi, managing director, Asset Management Corporation of Nigeria, said that economic growth in Nigeria might slow further. He said the 3.86 per cent growth achieved in the first quarter of this year might be the highest for the year. He linked this to the falling oil prices and other challenges facing the economy and the country in general.
By Dike Onwuamaeze