Growth is back in Africa, but still too little, says AfDB

Growth is picking up again, according to the report of the African Development Bank (AfDB) on the African Economic Outlook in 2019. Presented on 17 January at the institution’s headquarters in Abidjan, Côte d’Ivoire, the report notes that At the current rate, this growth should not be sufficient to meet the structural challenges facing the continent, particularly with regard to unemployment and poverty.

 Financial Afrik presents here some highlights of this report.

« The situation in the continent is good » and « Africa’s overall economic performance continues to improve, » said Afrika Bank President Akinwumi Adesina as a preface to the report. After a slowdown in real GDP to 2.1% in 2016, the African economy has indeed started a recovery with economic growth of 3.6% in 2017 and 3.5% in 2018.

In general, « economic growth has been significant across the continent, but with variations across economies and regions, » the report says.

Resource-poor countries, supported by higher agricultural production, higher consumer demand and increased public investment, have experienced much higher growth (Senegal 7%, Rwanda 7.2%, Côte d’Ivoire 7.4%).

On the other hand, the main commodity exporters experienced only slightly better or negative growth (Angola, 0.7%), while Nigeria (+ 1.9%) and South Africa (+0 , 7%), the two largest economies, pull Africa’s average growth down.

In terms of inflation, the average rate in Africa fell from 12.6% in 2017 to 10.9% in 2018, and is expected to decline further to reach 8.1% in 2020. It remains particularly low in developing countries. the CFA Franc zone (UEMOA and CEMAC) where it is less than 2%, thanks to the peg to the euro.

In the medium term, the GDP growth trend is expected to continue « with an acceleration to 4% in 2019 and 4.1% in 2020 ». By 2019, 40% of African countries are expected to grow by at least 5% and North Africa alone should « account for 40% » of this growth.

Employment, the weak link in growth

Although lower than that of China or India, Africa’s growth should be higher than that of other emerging and developing countries. However, it is insufficient to reduce unemployment and poverty, notes the AfDB.

With an active population that will « grow by almost 40% by 2030 » – the working-age population will be « nearly a billion in 2030 » – at the current rate, « only half of all newcomers in the labor market will find a job and most of these jobs will be in the informal sector.  »

Over the period 2000-2014, the continent recorded « an annual growth rate of employment of less than 1.8%, well below the 3% annual growth of the active population. Nearly 100 million young Africans are expected to be unemployed by 2030, the report says.

« Africa must industrialize »

Also, noting that « employment outcomes are better when growth episodes have been driven by the manufacturing sector, » which is reported to have the most ripple effect on the economy as a whole , the report is without appeal: « Africa must industrialize ».

The challenge is indeed to « avoid the trap of informality and chronic unemployment ». The informal sector, « the default solution for young people », represents 70 to 90% of jobs on the continent (excluding the agricultural sector), and is synonymous with low wages, precariousness and poverty.

The report therefore suggests improving the business environment for the benefit of SMEs in particular and investing in the infrastructure needed by businesses. « Small and medium-sized businesses are very unlikely to become big businesses. This stunting, coupled with low corporate survival rates, is crippling manufacturing activity in most African countries, « the report says.

No systemic risk of debt crisis

In terms of debt, the crisis is not for now anyway. « Africa’s debt is rising, but there is no systemic risk of a debt crisis. » At the end of 2017, the ratio of gross public debt to GDP reached 53% in Africa, although with great heterogeneity between countries.

Of the 52 African countries, 16 countries – including Algeria, Botswana, Burkina Faso and Mali – have a debt ratio (debt-to-GDP ratio) of less than 40%, while six countries – Cape Verde, Egypt , Eritrea, Mozambique, Congo and Sudan – have a ratio greater than 100%.

The AfDB estimates that 16 African countries can be considered to be at high risk of over-indebtedness or over-indebtedness. « In some countries, the debt situation has therefore become untenable, requiring urgent action » even though « while debt vulnerabilities are increasing in some African countries, the continent as a whole is not exposed to any risk. systemic debt crisis « .

These threats that hover

The report identifies four major risks that could call into question the revival of the African economy.

First, further escalation of trade tensions between the United States and its major trading partners could reduce global economic growth, with implications for Africa. In this case, a drop in global demand for raw materials will have an irreparable impact on the economies of the region.

Second, the costs of external financing could grow further if interest rates in developed countries rise faster than expected.

Third, if African countries were to experience extreme weather conditions again as a result of climate change, similar to those of recent years, agricultural output and GDP growth may be lower than anticipated.

And finally, in some areas, political instability and security problems could weaken economies.

For the AfDB, the challenge today for the African continent is to « reach the path of higher growth than » before the recession of 2009 which was about 5% « and that is » inclusive and favorable to employment « .

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