Growth in Sub-Saharan Africa should remain robust but decelerate in the wake of the decline in oil and commodity prices.
The IMF’s latest Regional Economic Outlook for Sub-Saharan Africa projects that the economy of the region is set to register another year of solid performance, expanding at 4½ percent in 2015. While this rate will be at the lower end of the range experienced over the last few years, Sub-Saharan Africa will remain among the fastest growing regions of the world.
Introducing the April 2015 IMF Regional Economic Outlook: Sub-Saharan Africa, Ms. Antoinette Sayeh, Director of the IMF’s African Department said:
- Sub-Saharan Africa’s economy is set to register another year of solid economic performance with growth expected to expand 4½ percent in 2015. The region will continue being one of the fastest growing in the world—second only to emerging and developing Asia. That said, the economic expansion will be at the lower end of the range experienced in recent years, mainly reflecting the impact of the sharp decline of oil and commodity prices over the last six months. But the impact of this shock will be highly differentiated across the region.
- Sub-Saharan Africa’s eight oil exporters have been hard hit by the price decline, and their average growth in 2015 is expected to be about 1¼ percentage points lower than in 2014 in response to this shock. However, for most of the rest of the region, growth prospects remain favorable. These countries are enjoying the benefits of lower oil import bills, although some are also feeling the impact of lower prices for their non-oil commodity exports. Growth is projected to be particularly strong in most low-income and more fragile countries, and this will help to reduce poverty levels.
- In Guinea, Liberia and Sierra Leone, the Ebola outbreak is beginning to be controlled, with a sharp decline in the incidence of new infections. However, 2015 will be another difficult year, with economic activity expected to be significantly depressed. The IMF has provided $390 million of assistance to help these countries, including $100 million of grants for debt relief—the first instance of such assistance by a development partner.
- While the baseline scenario is for solid growth, policy makers need to remain mindful of risks that could still cloud the outlook. In particular, global financial conditions are tightening just as the region’s frontier markets are increasingly relying on Eurobonds to finance their large investment needs. The deteriorating security situation in some areas could also strain budgets and have an adverse impact on the near-term growth outlook, especially in the agricultural sector, while weakening prospects for foreign direct investment.
- For the region’s eight oil exporting countries, fiscal adjustment is a priority; policy makers should support an adjustment by allowing exchange rates to depreciate, where flexible exchange rate mechanisms are in place. Most countries have already initiated policy adjustment. They should be prepared to take additional steps if conditions warrant, bearing in mind the need to avoid cuts to capital spending. Similarly, frontier markets must remain vigilant to avert the risk of disorderly capital movements, especially in response to changes in U.S. monetary policy. More broadly across the region, countries should take advantage of lower oil prices to eliminate fuel subsidies and put in place flexible energy pricing mechanisms (while ensuring that social protections are in place for the most vulnerable). Not only would that promote efficient energy use, but it would also make room to scale up education and infrastructure spending.
- The current circumstances also highlight the urgent need for policies that favor structural transformation to diversify Sub-Saharan Africa’s production base and promote greater integration into global trading networks. This will help the region create jobs for the rapidly growing young population as the region is set to experience a significant demographic transition in the next decades. By 2030 or so, the number of people reaching working age in the region will exceed that in the rest of the world combined. This offers a tremendous opportunity for Sub-Saharan Africa, which, if properly tapped, could create a powerful engine for long-term growth.
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Table of Contents
Chapter 1: Navigating Headwinds
Sub-Saharan Africa’s economy looks set to register another year of solid growth in 2015 (4½ percent). Still, this expansion will be at the lower end of the range by recent standards, and reflects the adverse shock that has hit some of the region’s largest economies due to the sharp decline in oil prices. The impact of this shock is set to be quite heterogeneous: for the eight oil exporters, it will pose a formidable challenge and, with limited buffers, will require them to undertake significant fiscal adjustment. For most other countries, lower oil prices represent a favorable development which, however, will be partly offset in some cases by lower prices of other commodities that they export.
- Global Backdrop: Not What It Has Been
- Outlook: Growing (with) Pain
- Falling Commodity Prices: A Tale of Two Africas
- External Financing Conditions: The Times They Are A-Changin’?
- The Impact of the Ebola Outbreak
Chapter 2: How Can Sub-Saharan Africa Harness the Demographic Dividend?
By 2035, the number of sub-Saharan Africans reaching working age (15–64) will exceed that of the rest of the world combined. This is a trend with potentially significant implications for both the region and the global economy.
- Sub-Saharan Africa’s Demographic Transition
- The Demographic Dividend: Channels and Challenges
- The Demographic Dividend: International Experiences
- Policy Options for Sub-Saharan Africa
- Policy Scenarios
Chapter 3: Global Value Chains: Where are You? The Missing Link in Sub-Saharan Africa’s Trade Integration
This chapter reviews the extent and strength of integration of sub-Saharan Africa into the global economy, with a special focus on trade and participation in global value chains. It evaluates how trade integration has contributed to economic performance in recent decades. Looking ahead, it examines the factors likely to allow the region to tap its still substantial trade integration potential, in particular through better positioning in global and regional value chains to support durable growth and foster structural transformation.
- International and Regional Integration Over the Last 20 Years
- Trade Openness and Macroeconomic Performance
- What Can Support Further Integration into Global Value Chains?
- Annex 3.1. Recent Trends in Regional Financial Integration in Sub-Saharan Africa
- Annex 3.2. Description of Econometric Models Used and List of Country Groups