African economies have been booming. Not any more, says the IMF in their latest snapshot of the continent, published today (3 May).
For fifteen years African economies have been booming. Chinese demand for African commodities and high world oil prices were a boon to the continent, with many economies growing at 5-7% a year. But the hard times are back, warns the IMF in its Africa Regional Economic Outlook, published today. Though there is considerable variation across countries, the overall picture is one of slowing growth: 3.4% in 2015, it reckons, the lowest level in fifteen years.
The main reason for the slowdown is plunging commodity prices: for African oil exporters, like Angola and Nigeria, the terms-of-trade shock is equivalent to some 20% of GDP. This group is expected to grow at 2.25% this year, down from 6% in 2014 (and given population growth rates in excess of 2%, that will mean falling per capita incomes). It’s not all about oil, either: Zambia, pulled down by the falling copper price, has been especially hard-hit. Exports to China have dropped, as the Chinese economy falters and its manufacturers run down inventories. For a long time, Africa ran a trade surplus with China; it is now running a deficit.
Other countries will continue to grow strongly. Cote D’Ivoire is projected to be the region’s best performer, with growth of 8.6% this year. East Africa, boosted by infrastructure spending, will progress at a healthy clip. But the oil importers are not immune. Tumbling currencies, caused in part by the anticipation of a US interest rate rise last year, have made imports more expensive. The lingering effects of Ebola in West Africa, and drought in the south and east, add to the continent’s woes.
The IMF puts forward a predictable package of responses. Exchange rate flexibility, they say, can help restore competitiveness (advice which Nigeria, for one, has conspicuously failed to follow). Fiscal tightening is needed to keep a lid on rising debt levels: given the difficulties that many African governments face in collecting tax, that likely means spending cuts or the scaling-back of investment projects. The policy response of African oil exporters, the IMF warns, has so far been ‘hesitant and insufficient’. Nothing short of a ‘policy reset’ is needed.
This is the kind of thing the IMF always says, of course. And some of their detailed statistics should be taken with a pinch of salt: even headline figures, like growth rates, are notoriously unreliable in many African countries. Nor should the scale of the problems be exaggerated. For most African countries this is a slowdown, not a crisis. The IMF remains optimistic about the continent’s medium-term prospects, pointing out that most countries are in a stronger position than they were going into previous commodity slumps.
But the pain is real. Africa doesn’t have the welfare states which could help people through tough times. And even in countries where growth remains solid, like Uganda, young people struggle to find work. The commodity boom might be over, but the population boom is not: there will be twice as many Africans in 2050 as there are today. Young populations present a tremendous opportunity in a continent whose future is still bright. In the short-term, though, they could channel economic troubles into broader political frustration.