Significant upcoming expectations for the African economy

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Experts are expecting an African economic boom

Significant upcoming expectations for the African economy

Africa’s average economic growth is 3.7% in 2016 and is expected to jump up to 4.5% in 2017


An annual report has been released recently about the future of the African economy in 2015; it was submitted by three experts at the African Development Bank (AFDB), Organisation for Economic Co-operation and Development and United Nations Development Program (UNDP). Although, the world’s economy suffers a slowdown, the report stresses on the continuous growth of the African economy during the past year. Africa’s GDP growth is estimated at 3.6 per cent, compared to the world’s GDP growth, 3.1 per cent, and 1.5 per cent of Eurozone GDP growth.

 

Africa is the second fastest growing economy in the world, preceded by East Asia. Sub-Saharan Africa, excluding South Africa, has witnessed the highest economic growth, 4.2 per cent, among other African countries whereas countries in East Africa seized a growth of 3.6 per cent. North, West and Central Africa’s economies witnessed a growth of over 3 per cent whereas South Africa seized 2.2 per cent. Africa’s economy is expected to grow by 3.7 per cent in 2016 and it could hike to 4.5 per cent in 2017, according to the report. This expectation depends on factors such as the global economic growth and the price increase of basic commodities.

Furthermore, external cash flows are estimated at $208bn in Africa as it depends on external cash flows in its economic growth. The African government was able to benefit from the global markets by issuing government bonds.

On the other hand, the world has witnessed sharp increase in prices as a result of certain crises that some countries suffer from. The global economic situation influences each African country differently; countries with abundant resources have low revenues whereas countries that import oil, benefit from the low inflation rate and small numbers of current bank accounts. Other countries suffer a budget deficit as a result of the current financial situation.

The report says that the African growth comes according to internal factors such as developing infrastructure, private sector investments and personal consumption. Investments and expansions in regional markets may pave the way for more economic growth.

Africa’s internal trade boom highlights the great opportunities given to the African manufacturers to diversify their products, in addition to the demographical potentials of Africa and the high rate of youth in the African population. The report advises the governments to implement the right policies to make the best use of these potentials.

However, three among four Africans suffer harsh living conditions as compared to one among five in the world.  The report asserts the importance of structural, organisational reformations and economic stability, in addition to solving energy supply problem to remove the obstacles that hinder economic growth. It is of great significance to invest in the social sectors which provide great opportunities to youth and women and achieve development goals set by African institutions and the international community.

Urban transformation provides several opportunities to fasten the economic and social development, along with putting into consideration the environmental protection. Moreover, such opportunities could be made use of to hit the goals of sustainable development and set a plan to form an African union by 2063.

If governments adopt a comprehensive approach to develop the economy, it will benefit all urban citizens. For instance, urban markets could be linked to rural economies to increase the agricultural production, harvest more crops and increase non-agricultural income.

Urban infrastructure investments are very crucial and need to be expanded so African cities and town could be the drivers of structural development either on the local, national or regional levels. Urban outcomes could be achieved by applying a number of explicit reformations, setting strategies to achieve the outcomes, providing innovative financing methods and exerting efforts to set new effective governance methods that have several levels.

The report asserts that both the current African cooperation toward urban development and the new internal urban agenda, pave the way for addressing policies and how they could be made to push the African urban transformation forward.

Local factors of growth

The report addresses the local factors that contributed to the African economic growth. Among the factors was agriculture as it boosted the economy and the supply of goods in countries that enjoy good weather. However, countries, such as in East and South Africa, that suffer drought and floods have a slow growth rate.

As for countries that enjoy abundant natural resources, economic growth slowed down as a result of commodities’ price increase over the public budgets and investments. Furthermore, the industry was boosted in few countries but it did not witness much growth due to energy shortage.

In regard to demand on commodities in Africa, consumption and investments have been both together the main drivers of growth which helped Africa to be safe from the global economic crises. However, the international demand decrease has affected the African exports negatively, especially mineral and oil exports, in addition to terrorist attacks that influenced tourism negatively.

As most African countries suffer budget deficits, it is of a great importance to balance the debt levels. Accordingly, governments are exerting efforts to apply consistent financial policies, limit expenditures and improve the methods of obtaining taxes.  Low exchange rates and current accounts decline have both increased the inflation rate. As a result, suffering countries were forced to make the credit policies stricter to face the inflation problem. Other countries witnessed low inflation rates because electricity price was decreased which made room for facilitating the credit policies by decreasing the profit rates to encourage growth.

In 2015, net credit flows given to Africa were estimated at $208bn, lower than the last year’s credit flows by 1.8 per cent. Official development aids hiked but financial transfers, which are the main source of net credit flows given to Africa, kept stable. Although, profit rates have jumped up, government bonds have also increased which reflects countries’ lack of resources.

 Direct foreign investments in the oil and mineral sectors slid in Africa. In addition, mining sector was influenced negatively as a result of basic commodities price fall. Similarly, net flows of shares portfolio, credit and trade credit dropped as a result of the market slowdown and global credit flow situation. Even credit trading among emerging big economies that suffer slowdowns, has dropped. Thus, the report asserts that countries need to make policies that achieve stability of current financial resources and find out new resources in order to develop the infrastructure, train potential employees and recruit them.

Furthermore, the report said that the African economic growth over the last 15 years, has provided new opportunities for trade exchange. The EU is expected to be the main trade partner of Africa. Also, Tripartite Free Trade Area (TFTA) agreement will be made among the biggest African trading blocs and it could increase the market volume. The agreement is also supposed to increase the African countries’ income and integrate the region on the financial level, provided that African governments exert efforts to conduct structural and organisational reformations and stabilise the overall economy. The report suggest that African banks should play the biggest role of financing trade, increase the flow of financial markets and attract new financial resources to finance the internal trade.

African countries have improved its education, health services and the standards of living; however, these improvements are insufficient. Unequal incomes either among countries, in a single country or among men and women, hinders Africa’s development.

Africa’s development is hindered because youth are not offered opportunities to innovate; sectors such as agriculture and unofficial sector led by marginalised groups have poor development skills. In addition, Africa has few investments in programmes such as equality among sexes or empowering women in other spheres, excluding the political sphere.

 

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