This week, the World Bank published its annual Global Economic Prospects, forecasting a modest 2.9% growth in the world economy, after a disappointing 2.4% last year fell below expectations. But the message for Africa was more nuanced – and more worrying.
Although it predicts 4.2% growth in 2016 in Africa, the World Bank points to commodity prices, electricity shortages, the Boko Haram insurgency and the slowing of emerging markets in Brazil, Russia, China and South Africa, as serious concerns for sub-Saharan Africa.
Franziska Ohnsorge, is the lead economist of the World Bank report – which took four months to compile and a staff of 20 to write.
The World Bank Economic Forecast report is mildly optimistic about the outlook for 2016 – but is that just because 2015 was so bad?
2015 was bad. Not just bad, but historically bad, exceptionally bad and unexpectedly bad. It was worse than 2008-9, when the global recession hit, worse than 2012 when there was weak trade. We have monitored 50 commodity prices since 1980. Last year 42 of those declined. That is unprecedented – across energy, metals, agriculture. It hit Latin America, too. Africa is not alone.
Low commodity prices is one thing – that has hit a lot of countries – weak trade is another thing. It was a really weak trade year, too. And capital flows have been the weakest since the crisis. So it was all-round a difficult external environment, and you add to that domestic problems in several of these countries (in Africa), so in many of them you have manufacturing disruption due to electricity bottlenecks. And in some there were elections, which is political uncertainty.
And so you get a very weak year in 2015.
So the obvious question is – why are you confident 2016 will be better?
Yes, that is the obvious question.
There are some strong assumptions underlying it. One assumption is that the advanced countries’ recovery picks up and proceeds as expected. So we expect advanced countries to grow instead of 1.7%, 2.1%. We expect this to not be derailed.
Second assumption – we expect there will be no financial sector turmoil. At least no sustained turmoil.
And the third assumption is that China continues to slow very gradually. No surprises there.
And the fourth assumption, especially important for Africa, is that commodity prices stabilise.
Hasn’t one of those assumptions just been blown out of the water, with the Chinese stock exchange plummeting and being – temporarily – shut down?
The Chinese stock exchange is volatile, yes, but it doesn’t have those deep roots into the real economy. Last year had a sharp correction in the summer, the authorities intervened, and the impact on the real economy was very limited. So we don’t expect it to be derailed. It’s a downside risk, but our China forecast is 6.7% and we think that is a good, centred forecast.
I wanted to ask you about the subtitle of the World Bank report, which is “Spillovers Amid Weak Growth.” What does the Bank mean by that?
This is the whole centre of the analysis of the report. The main risk is spillovers from emerging markets. The key risk to global growth is that several – not just one – emerging markets slow at the same time.
Those are Brazil, Russia, India, China, South Africa. Of the five, India is the only growing as expected. South Africa, Russia and China have been slowing three years in a row, which is quite exceptional. And Brazil is in a deep recession.
And that’s extremely worrying.
And we worry about the spillovers, the ripple effects of slowing growth in BRICS, slowing other countries. That could derail growth, and the risk is increasing.
Would you say that’s the main ‘takeaway’ message from the 238-page report?
Yes, the risk scenario is a 1% slowdown in BRICS will reduce global growth by 0.4 percentage points over the next two years.
Let’s talk about sub-Saharan Africa – what’s the outlook there?
We expect it to pick up. On two assumptions. Africa is actually fairly diversified in its export markets. China is big, but Europe is even bigger, and it will benefit from the recovery in the euro area that’s proceeding. And we’re predicting that the low commodity prices will stabilise. Although we don’t seem them improving. And global growth will gently rise.
And we also predict these electricity bottlenecks will be eased – at least in Nigeria, Ghana and South Africa, because the governments have made moves.
The report’s chapter on sub-Saharan Africa identifies the two biggest economic risks are electricity bottlenecks, and the Boko Haram insurgency. Which of those is the bigger threat, or which worries you the most?
We can’t really measure the political risk. But Boko Haram is affecting Niger, Cameroon, and Chad.
Burundi, Burkino Faso and South Sudan. Elections are not a problem, it’s the uncertainty. And Burundi is more than uncertaintity – it’s an upheaval. But those we can’t put an (economic) number on.
We know that in South Africa the bottlenecks really do seem to be falling, thanks to the actions the government is taking. And Nigeria has announced investment. Ghana has made it a priority. In Zambia, a drought affected hyro-electric power. It’s a question of investment, and a question of management.
So what might be the African “stars” and what are the “flops” of 2016?
Well, we’re worried about the commodity exporters – as a group. We assuming that the fiscal tightening of 2015, and the interest rate hikes of 2015, and the capital controls in Nigeria in 2015 – the pressures to ease will be strong. But we might be wrong. Maybe another year of fiscal tightening will be necessary.
The flip side is the commodity importers should improve. The highest growth rate is expected in Ethiopia, above 10%, mainly because of public investment. Kenya is another one with high growth rates.
So for Africa we see a lot of risks to growth – even in the ones that are currently commodity importers, because several of them have big investments that are yet to come on stream, but are currently being developed.
A key thing in a lot of these developing countries there have been big resource discoveries in a lot of these countries – and that’s a good thing. It adds, on average, 6% of GDP. That’s a lot.
But the problem that comes with it is that it comes with an investment boom.
[In the report] we look at 46 countries that have had copper or gold mines discovered. Tanzania, Mozambique, Uganda, Guinea – there have been a lot of discoveries. In the 15 years between discovery and production you get an investment boom, and you get macro-economic vulnerabilities rising. So, for example, it’s most glaring in Uganda and Mozambique’s growing current account deficits. It’s doubled in Uganda and quadrupled in Mozambique.
The longer the lead time, the longer these vulnerabilities exist, and the commodity price decline risks extending those lead times further.
And the biggest problems are corruption, and quality of governance.