WB: Africa’s Growth Set to Reach 5.2% in 2014

Risks to fast growth remain

Africa’s Pulse notes that while GDP growth in the region is expected to remain stronger than in many other developing countries worldwide, a number of important risks remain.

Commodity prices--weaker demand for metals and other key commodities, combined with increased supply, could lead to a shaper decline in commodity prices. In particular, if Chinese demand, which accounts for about 45 percent of total copper demand and a large share of global iron ore demand, remains weaker than in recent years and supply continues to grow robustly, copper and iron ore prices could decline more sharply, with significant negative consequences for the metal-producing countries.

Locally volatile food prices--within Sub-Saharan Africa, strong local price pressures have emerged in a number of countries driven in part by large currency depreciations, as in Ghana and Zambia, and also by unfavorable weather conditions. In francophone West Africa, drought in 2013 resulted in crop losses of up to 50 percent in parts of the Sahel region. Larger currency depreciations and lower local harvests due to intensifying drought conditions could hurt poor buyers, and result in higher inflation. Increasing integration with larger regional markets can reduce the magnitude of the price effects from localized shocks, while lower trade barriers and better trade infrastructure would allow faster and more efficient response to localized food shortages.

Political uncertainty--domestic risks associated with social and political unrest, and emerging security problems, remain a major threat to the economic prospects of a number of countries in the region. In South Sudan, a ceasefire, signed between the conflicting sides on January 23, 2014, remains tenuous, and sporadic violence has continued to disrupt oil production. In the Central African Republic, insecurity and large-scale displacement of persons are severely disrupting economic activity and livelihoods. Also on the domestic front, upcoming national elections in several countries may slow the pace of much-needed structural reforms.

In a special analysis of the region’s growth and trade patterns in Africa, Africa’s Pulse says that export diversification remains a tough challenge for many African countries, especially oil producers.

“Although Sub-Saharan Africa’s exports remain concentrated in a few strategic commodities, the region’s countries have made substantial progress in diversifying their trading partners,” says Francisco Ferreira, Chief Economist, World Bank Africa Region. “Over the last decade, exports to emerging markets such as the BRICs—Brazil, Russia, India, China—have grown robustly, primarily due to the prolonged boom in commodities demand. The BRICs received only 9 percent of Sub-Saharan Africa’s exports in 2000 but accounted for 34 percent of total exports a decade later.”

Ferreira says total exports to the BRICs surpassed the region’s exports to the European Union (EU) market in 2010 and continue to grow. In 2012, the region’s exports to the BRICs reached $145 billion. China alone accounted for about a quarter (23.3 percent) of the region’s total merchandise exports. Of course, this shift in trading partners also underscores the region’s vulnerability to any slowdown in the BRICs, particularly China.