First decline since 1994 set to worsen poverty, IMF warns
Income per head in sub-Saharan Africa, the world’s poorest region, will fall this year for the first time since 1994, according to the International Monetary Fund.
The fund has downgraded its forecast for gross domestic product growth in sub-Saharan Africa from the 3 per cent it foresaw in April to just 1.6 per cent, well below expectations of population growth of 2.5 per cent.
The sharp slowdown will entrench poverty in a region where annual per capita GDP in purchasing power parity terms is just $3,869.
“This [fall in per capita GDP] is very bad news. It’s something that people really haven’t paid enough attention to in Africa,” said John Ashbourne, Africa economist at Capital Economics.
“Even when you had growth of 5 per cent, with population growth of 2.8 per cent you were losing half of that. Things were never getting better at the rate people thought. Now things will be getting worse for the median person in Africa.”
Yvonne Mhango, sub-Saharan economist at Renaissance Capital, added: “We need to be growing at around 6 to 7 per cent in order to make inroads into poverty reduction in sub-Saharan Africa.
“The region will regress for two to three years at least. This will delay the achievement of some of the development goals that have been set.”
Africans are also set to fall even further behind the rest of the world in relative terms, further undermining the increasingly tarnished concept of “Africa rising”.
If the IMF’s revised numbers prove correct, GDP growth in sub-Saharan Africa will not only be the weakest since 1992, but will undershoot global growth for the first time since 2000, as the chart shows.
This trend is likely to be repeated in 2017, with the IMF having downgraded its forecast for sub-Saharan GDP growth from 4 per cent to 3.3 per cent for next year, below the 3.4 per cent it has pencilled in for the world at large.
The IMF’s sharp downward revision for 2016 is driven by the woes of the sub-Saharan region’s two largest economies, Nigeria and South Africa.
Although the fund trimmed its forecast for global growth to 3.1 per cent this year, this still represents meaningful real gains, given population growth of around 1.2 per cent.
The Washington-based body believes the Nigerian economy will contract by 1.8 per cent this year, rather than expanding by 2.3 per cent, as foreseen in April.
Africa’s most populous nation has been roiled by weak oil prices, attacks on oil installations in the south of the country and the predations of Boko Haram extremists in the north, as well as the self-inflicted pain of an abortive attempt to prop up the naira that led to a severe foreign currency shortage.
South Africa, where the IMF now sees growth of just 0.1 per cent this year, rather than 0.6 per cent, has suffered a litany of woes ranging from low commodity prices, power shortages and poor job creation to severe drought and weak consumer confidence due to political uncertainty.
The IMF’s forecasts for these two heavyweights, which between them account for 54 per cent of sub-Saharan GDP, are now below those of many commercial organisations, particularly Standard Chartered.
The London-based bank still sees growth of 0.6 per cent in South Africa and 1.6 per cent in Nigeria this year, despite both countries reporting a year-on-year contraction in the first quarter of 2016.
Razia Khan, chief Africa economist at StanChart, argued that with the oil sector now less than 10 per cent of the Nigerian economy, the abandonment of the naira’s damaging dollar peg and an expansionary budget, growth should return in the remainder of this year.
Ms Mhango also predicted growth in Nigeria in the second half of the year, thanks to the belated unveiling of economic reforms, although the situation was likely “to be challenging for some years”.
Across the sub-Saharan region as a whole, Mr Ashbourne argued “there are two things happening. Trend growth in most cases has come down because of lower commodity prices and that has coincided with big problems in the three largest economies”, with Angola, the region’s third-largest economy, “also having a disastrous year”, thanks to rising unemployment and inflation topping 30 per cent.
However, there is a view that the IMF’s glum regional forecast is largely driven by the problems of the largest economies, rather than being symptomatic of the 49 countries of sub-Saharan Africa as a whole.
Mr Ashbourne singled out the success of east Africa, where he believed growth is accelerating in Kenya and is likely to hit 5-6 per cent this year in Ethiopia.
Ms Khan also pointed to Ivory Coast, where “strong investment and private consumption” (allied to the benefits of a “reasonably consistent electricity supply”, something that would go without saying in many other parts of the world) should generate growth of around 8 per cent this year.
Elsewhere in west Africa, Senegal is likely to chalk up its strongest growth for 13 years, of 6.5 per cent, said Ms Khan, who argued that the IMF’s overall forecast “doesn’t tell the whole African story by any stretch”.
Despite this Mr Ashbourne, who estimated regional growth would recover somewhat to 3 per cent in 2017, said “the bounceback that will happen next year will not take growth back to what is considered normal”.
“Even if things get better next year, it will still be what was thought very bad a few years ago,” he added.
Mr Ashbourne believed the only two paths back to growth of around 5 per cent a year, considered normal earlier this century, would be a return to elevated commodity prices, “which is pretty unlikely”, or widespread economic reform of the sort seen in Rwanda and Kenya, “which is pretty hard to imagine”.