Despite weak growth and increasing uncertainty in high-income countries, medium-term growth prospects for sub-Saharan Africa were looking promising.
The region was expected to record 5% growth during 2012, up from 4.7% in 2011, and 5.3% was predicted in 2013, as global demand firms and domestic demand remained robust, the World Bank stated in its latest ‘Global Economic Prospects’ report.
To date, higher commodity prices, improved macroeconomic and political stability have supported increased private investment flows to sub-Saharan Africa, boosting prospects in the medium term.
Excluding South Africa, which accounts for over one-third of the region’s gross domestic product (GDP), growth in the rest of sub-Saharan Africa was stronger at 5.6% last year, making it one of the fastest-growing developing regions.
South Africa’s economic growth is projected to slow to 2.7% this year, from 3.1% in 2011, but will pick up to 3.4% in 2013 and 3.5% in 2014.
The World Bank, which is forecasting global growth of 2.5% this year, cautioned that weak demand from crisis-hit Europe would impact on exports from sub-Saharan African countries in 2012.
But increasing diversification of trading partners should provide a cushion, with the bank’s statistics indicating that Europe’s share of Sub-Saharan African exports declined from 40% in 2002 to around 25% in 2010.
The ‘Global Economic Prospects’ report is forecasting global GDP to rise 3% next year and by 3.3% in 2014, while high-income countries’ growth would only reach 1.4% this year, followed by 1.9% and 2.3% in 2013 and 2014, respectively.
Developing countries, despite a slower projected growth, were expected to account for more than half of the global growth from 2012 to 2014, recording a 5.3% growth in 2012 and strengthening to 5.9% and 6% in 2013 and 2014, respectively, owing to high-income demand, weak capital flows, rising capital costs and capacity constraints in several large middle-income countries.
Financial market uncertainty and fiscal consolidation associated with the high deficits and debt levels of high-income countries, such as the US, Japan and many eurozone countries, were likely to be recurring sources of volatility for several years to come, said the World Bank.
The bank stated that the resurgence of tensions in the high-income world indicated that the after effects of the 2008/9 financial crisis had not yet played themselves out.
It stated that policy makers were still to find the right mix of structural and macroeconomic policies to turn “the vicious circle into a virtuous circle”, where reduced tensions yield lower interest rates – and deficits – that allow for stronger private-sector growth and even more rapid progress toward fiscal sustainability.
“Global capital market and investor sentiment are likely to remain volatile over the medium term, making economic policy setting difficult. In this environment, developing countries should focus on productivity-enhancing reforms and infrastructure investment instead of reacting to day-to-day changes in the international environment,” director of development prospects Hans Timmer said.
The World Bank stated that infrastructure investment in sub-Saharan Africa, particularly from China, India and Brazil, should bolster productive capacity.
Infrastructure projects and manufacturing accounted for the bulk of new foreign direct investment (FDI) to the region last year. FDI flows increased by 27% in 2011, but are expected to dip 4% this year, owing to heightened financial market tensions. By 2014, record FDI flows of $46.8-billion are forecast.
Intra-African investment, which accounted for some 17% of all new projects, increased by 32% in 2011, reflecting the growing dynamism of FDI flow from countries such as South Africa and Nigeria.