Roundup: World Bank says low commodity prices continue to impede Africa's growth

Economic activity in Africa continues to slow down due to the low commodity prices, the World Bank has said in its new report.

According to figures in 'Africa's Pulse', World Bank's twice yearly analysis of the economic trends on the continent, economic growth in Sub-Saharan Africa slowed in 2015, with GDP growth averaging 3.0 percent, down from 4.5 percent in 2014. This means that the pace of expansion decelerated to the lows last seen in 2009.

The report issued on April 11 shows that the 2016 growth forecast remains subdued at 3.3 percent, way below the robust 6.8 percent growth in GDP that the continent sustained in the 2003-2008 period.

Overall, growth is projected to pick up in 2017-2018 to 4.5 percent.

This poor performance is attributed to the plunge in commodity, particularly oil, which fell 67 percent from June 2014 to December 2015, and weak global growth, especially in emerging market economies.

The adverse impact of lower commodity prices was compounded by domestic conditions such as electricity shortages, policy uncertainty, drought, and security threats, which hindered growth.

Despite this murky picture, there were some bright spots where growth continued to be robust such as in Cote d'Ivoire, which saw a favorable policy environment and rising investment, as well as oil importers such as Kenya, Rwanda, and Tanzania.

MOVING FORWARD

Sub-Saharan African countries will continue to face low and volatile prices in global commodity markets.

The report recommends that governments must take steps to adjust to a new, lower level of commodity prices, address economic vulnerabilities, and develop new sources of sustainable, inclusive growth.

According to the Bank, delays in implementing adjustments to the drop in revenues from commodity exports and worsening drought conditions present risks to Africa's growth prospects.

Makhtar Diop, World Bank Vice President for Africa said as countries adjust to a more challenging global environment, stronger efforts to increase domestic resource mobilization will be needed.

"With the trend of falling commodity prices, particularly oil and gas, it is time to accelerate all reforms that will unleash the growth potential of Africa and provide affordable electricity for the African people," he said.

Several countries, according to the report are expected to see moderate growth. Among frontier markets, growth is expected to edge up in Ghana, driven by improving investor sentiment, the launch of new oilfields, and the easing of the electricity crisis.

In Kenya, growth is expected to remain robust, supported by private consumption and public infrastructure investment.

The projected pickup in growth in 2017-2018 reflects a gradual improvement in the continent's largest economies - Angola, Nigeria, and South Africa - as commodity prices stabilize and growth-enhancing reforms are implemented.

The report argues that the rapid decline in oil and commodity prices, which has adversely affected resource-rich countries, signals an urgent need for economic diversification in Africa.

The continent's growing urban centers, according to the Bank, offer a springboard for diversification. This calls for the need of better institutions for effective planning and coordination that can raise urban economic density and productivity, and spur the continent's transformation.

"To build cities that work, cities that are livable, connected, and affordable, and therefore economically dense, policy makers will need to direct attention toward the deeper structural problems that misallocate land, fragment development, and limit productivity," said the report.

Punam Chuhan-Pole, Acting Chief Economist, World Bank Africa and the report's author said all this will require will require reforming urban land markets and urban regulations and coordinating early infrastructure investment.

African cities are currently not delivering agglomeration economies or reaping urban productivity benefits. Instead they suffer from high housing and transport costs, in addition to the high cost of food that takes up a large share of urban household budgets. Enditem