Why Sub-Saharan Africa is having it rough in 2019

The average debt to GDP ratio has grown to 57% with 14 countries either being in debt distress or at high risk of debt distress, up from six countries in 2013

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BY ANTONY MUTUNGA

The economic growth of sub-Saharan Africa (SSA) took a beating in 2018, declining from 2.5% in 2017 to 2.3% according to the World Bank. The slowdown was accredited to weaker exports among the largest exporters on the continent; Nigeria and Angola, as well as subdued growth in resource intensive countries such as Zambia and Liberia. Sudan experiencing a deep recession was also a contributor.

According to the World Bank’s Africa Pulse 2019 report, the slowdown was experienced more in the first half of the year. In the second half, the economy was able to rebound a bit. For instance, demand for some African exports has gone up and agriculture has also rebounded in some areas in the region. As a result, the World Bank has forecasted that the economic growth of sub-Saharan Africa is expected to rise to 2.8% in 2019.

Even though the World Bank has predicted the region’s economy to rebound this year, there are still some risks that continue to haunt the countries in the region, unemployment and underemployment leading according to the World Economic Forum. Compared to the other regions around the world, Sub-Saharan Africa has more than half of its countries having challenges when it comes to employment.

Despite Sub-Saharan Africa having an unemployment rate of 6.1% in 2018, the rate masks the true challenges that are being faced by those on the ground. The number of people in vulnerable employment in the region currently stands at 74% while it is at 45% globally. Vulnerable employment refers to type of working that is insecure to fluctuations in the business cycles such as unpaid family workers and own-account workers.

Additionally, according to stats from International Labour Organization (ILO), the share of the working poor is close to 33% and the continent held more than half of the world’s working poor, 56%, in 2018. ILO defines working poor as the employed population living in poverty despite being employed, implying that their employment-related incomes are not sufficient to lift them and their families out of poverty and ensure decent living conditions.  This has been attributed to the low levels in terms of education in the region.

With the population of Africa expected to increase by 1.3 million people by 2050, the number of the working age is expected to increase as well. According to the United Nations (UN), the working-age population of Africa is expected to more than double to 1.6 billion by 2050 and if the continent is unprepared, then the number of unemployed is only expected to increase to unmanageable levels.

Political risks are also another major threat to the region’s growth in 2019. For the longest period the political scene in most African countries has been wanting. Some leaders have decided to prolong their stay in power while in others elections seem to mostly end in violence. As a result, politics and corruption seem to always threaten the region’s economic growth.

In early 2019, two of the regions’ largest economies in the region, Nigeria and South Africa went to the polls with Nigeria re-electing Muhammadu Buhari President. The ruling party also retained a majority in the senate. The results did not sit well with the opposition. According to Lagos-based SBM Intelligence, the polls were marred with violence with about 40 people losing their lives before the results were announced. Such situations cause the growth of the economy to decline as businesses remain closed and investors hold off due to the uncertainty in the market.

South Africa, on the other hand, had their elections in May. Prior to going to the polls, the country faced protests where roads were blocked. Some of the polling stations were attacked on the eve of the election. All this causes a negative reaction in the nation’s economy. With Nigeria and South Africa being the largest economies in the region, when their growth declines it causes a negative change in the region’s overall growth.

The region has also faced a major problem when it comes to critical infrastructure. Most African countries are characterized by a failure in critical infrastructure that prevents them from reaching their potential. This can be accredited to the fact that infrastructure services are usually more expensive in the region than elsewhere, due to diseconomies of scale in production, high-profit margins due to lack of competition and high level corruption.

Even though China has ventured in the region to help in financing infrastructure projects, the infrastructure-funding gap is still quite high. In fact, according to a report from the Boston Consulting Group in collaboration with the Africa Finance Corporation, Sub-Saharan Africa has an infrastructure-funding gap of $100b (Sh10 trillion).

Due to lack of critical infrastructure, most businesses in the region are at risk of cyber-crime, which has been on a rise all over the world. With most organizations in the continent lacking the required security, they are highly susceptible to hackers. In 2017, African businesses lost an estimated $3.5 billion (Sh353 billion) as a result of cyber-crime according to a report by Serianu, IT services and consulting firm.

Sub- Saharan Africa is also characterized by fiscal crises. Almost every country in the region is affected. In most African countries the deficit between expenditures and tax revenues has continued to grow over the years. As a result, the countries have moved to taking up loans in order to be bridge the deficit. This in turn has seen the average debt to GDP ratio grow to 57% with 14 countries either being in debt distress or at high risk of debt distress up from six countries in 2013, Sudan and Mozambique serving as the best example.

Eventually because the countries require finances to service their rising debt costs, they are forced to divert from spending on investment to using a large portion on servicing their loans, affecting investment in infrastructure that the region is in dire need of. Other risks that the region is facing include changes in energy prices, which mostly affect the largest economies and the trade war between China and USA that is already spilling to the shores of Africa in terms of less exports.

Sub-Saharan Africa is expected to have a tough 2019. In order to reach the World Bank’s forecast, governments will need to put up strategies and policies that will handle these major risks.