BY ANTONY MUTUNGA
Last year, the sub-Saharan region recorded a 3% growth after a slow year in 2017, where it stood at 2.7%, according to the International Monetary Fund (IMF). This was as a result of better economic policies and external environment. For 2019, the IMF predicted the economic growth was to increase even further, stating it would reach 3.5%.
After six months, the institution reviewed its forecast, and in its October 2019 regional economic outlook, it trimmed down its forecast to 3.2%. The slower pace is due to weaker growth in one of the largest countries in the region, volatile oil prices causing output disruptions for some countries and a challenging external environment. The slower pace in growth is expected to affect about 21 countries more than the rest due to being resource-intensive.
In 2018, South Africa, one of Africa’s largest economies, recorded a growth of 0.8%. The slow growth was due to a technical recession in the first half of the year after experiencing negative economic growth. In 2019, the IMF predicted an increase in the economy’s growth. However, in its latest report, the economy is expected to decline and stand at 0.7%. As a result of strikes, such as the one at Sibanye-Stillwater, the largest individual producer of gold in the country, both production and revenue have been negatively affected, thus harming the economy.
Apart from the strikes and the mining industry taking a hit in terms of revenue, the agriculture sector was also decreasing in terms of growth. As a result of dry conditions, the country, which is the world’s eighth-largest wine producer, harvested a small number of wine grapes. According to VinPro, a non-profit company that represents 3,500 South African wine producers, cellars & industry stakeholders, the country expects the slowest yields since 2005, where it harvested a mere 1,171,632 tonnes of wine grapes.
The other large economies in the region are also not on track as they also contribute to the slow pace. For instance, oil-exporting countries such as Nigeria and Angola have been affected by the decline in oil prices. Despite these countries increasing their daily productions, investments in the sector have been on the decline. During the period of rising oil prices, many energy companies were flocking to these country’s oil-rich offshore basins. However, when the prices declined, investments dried up as the companies focussed more on shale fields, which incurred lower costs and needed smaller investments. Weather conditions have also played a part in the slow growth. In the Southern part of the region, countries like Mozambique and Zimbabwe have been affected by tropical cyclones, which have affected over three million people by destroying homes, infrastructure, and even causing communication outages. As a result, the effects of the cyclones will take these economies back.
Other than these challenges, the major contributor to the decline in projected growth by the IMF has been the growing global uncertainty. With trade tensions still ongoing between the U.S and China, economic activity around the world has continued to slow down. Countries in the Sub Saharan region have been affected as export growth has declined significantly. Unable to escape the effects of what is happening, a majority have recorded a low growth rate as a result.
South Africa has been affected majorly by the tensions as investors have shied away. It has caused the country’s currency to weaken against the dollar. Despite negotiations currently ongoing between the two countries, neither has a written agreement come out nor have some of the current steep tariffs been brought down. With no end in sight, investors will continue to remain risk-averse, leading to weaker currencies.The most affected by the trade tensions are commodity exporters as well as those countries that have a close relationship with China. The trade tensions have caused China to reduce its production, which in term has reduced the country’s need for raw materials. With China being the largest trading partner of Africa, the Sub-Sahara African region has experienced a reduction in its annual exports. For example, the South Sudan economy has been highly affected as it relies on the dragon of the east, which takes up about a quarter of its exports.
Apart from trade tensions, uncertainty from Brexit has also held back economic potential in the region. As the nature of Brexit continues to change, uncertainty has continued to grow, causing investors to hold off. Also, supply chains between the region and the United Kingdom have been disrupted. The uncertainty caused by Brexit has mostly affected South Africa as the U.K has invested much in the country. For example, according to a report by Baker McKenzie, in 2018, investors from the U.K completed merger and acquisition transactions worth Sh611 billion ($5.9billion) in South Africa.
The global uncertainty has greatly affected the country but also it has shown the regional heads the importance of being self-reliant. This goes to show how much the region needs to increase intra-regional trade. In doing so, Sub Saharan Africa will not be as affected as much by external factors. With the implementation of AfCFTA so close, all regional countries need to come together. This will result in increased investments and in the long run, it will increase the region’s economic growth rate.