16-30 November 2019
World Bank this month published its latest analysis of Africa’s economic outlook. The international financial institution says growth in sub-Saharan Africa is picking up, although not quite as fast as it originally forecast last year. The increase in growth has been helped by rising commodity prices such as oil and metals. Spotlight on Africa spoke to Punam Chuhan-Pole, the World Bank’s lead economist for the Africa region…
Q&A: Punam Chuhan-Pole
You say economic recovery is underway in sub-Saharan Africa – what are the main drivers of this?
The recovery that began in 2017 is continuing. Some of the same factors that helped facilitate growth last year are helping to support growth this year. We expect commodity prices to be fairly stable – last year they went up quite strongly. But we expect stability in commodity prices moving forward with a slight upward trend in oil. We also expect continuing robust growth in global trade and generally supportive global financial market conditions. So overall we expect growth to pick up from 2.7 per cent in 2017 to 3.1per cent this year and forming to 3.5 per cent next year and above 3.7 per cent in 2020.
Nigeria has come out of more than a year of recession, according to your research. What are the reasons for this?
The recovery in Nigeria which began last year and picked up momentum in the second half of the year is being led by a recovery in oil production, commodity prices going up, which is helping the economy generally. Agriculture was also growing last year. We expect that moving forward oil production and the oil sector will continue to grow. The area that we think is lagging is non-oil industry and services.
Is the increase in economic growth in sub-Saharan Africa really likely to lead to improvements in the standard of living for people on the ground?
The recovery is good news of course. But the pace of the recovery is moderate and that reflects the gradual pickup in growth in the largest economies like Angola, South Africa and Nigeria. However, there’s a lot of diversity within the region and we have countries that are growing at a fairly robust pace; and were growing at a robust pace last year and we expect them to continue to grow at a robust pace. For example, Cote d’Ivoire, we also have Ethiopia, which is one of the fastest growing countries in the world. So there is a fair amount of diversity. If you actually exclude the three largest countries, growth is expected to be at about 4.7 per cent in sub-Saharan Africa. What does it mean in terms of people’s livelihoods? Are they seeing an improvement? At growth rates that are below population growth rates on aggregate for the region, you don’t see an increase in per capita income last year. This year, there will be a growth in per capita income in real terms. But we think that growth has to be a lot faster to be able to accelerate poverty reduction and to deepen the gains that the region has made in terms of poverty reduction.
What’s the significance of more countries issuing sovereign bonds, selling their debt?
One of the issues that we examine in the Pulse is to see what is happening in terms of the evolution of debt and debt risks. We find that for the region as a whole, debt has been rising relative to GDP [Gross Domestic Product]. Actually the rise has been fairly rapid between 2013 and 2017 after a period when public debt burdens were falling through 2012. So debt has picked up, the public debt burden – the median increase is about 20 percentage points relative to GDP. But there’s a lot of variation across countries and so you do have countries that have had a more rapid increase in debt burden and some that have not. One thing that we do find is that composition of public debt has changed and that comes to the question of more countries borrowing on commercial terms, borrowing Eurobonds. We do find that there has been a shift away from concessional and multilateral debt towards more market-based borrowing and market sources of debt. We also find that countries in the region have been borrowing domestically, governments have been borrowing domestically. Yes, composition of debt has changed, the risk profile has changed – it’s on more market-based terms, shorter maturities – all of which does raise issues of managing the risk that comes from the nature of the borrowing.
Are you worried about the levels of debt or the composition of that debt?
It’s a combination. When we look at the standard debt sustainability analysis that’s done for low incomecountries, we find that the number of countries that are now being categorised as being at high risk of debt distress has gone up. And I think that points to the need to actually manage debt well and manage the risks that emanate from debt. But I think one thing I want to emphasise is that debt by itself is not bad because countries borrow to finance much needed spending on infrastructure, be it in the electricity sector or in terms of transportation. So it’s an important way to finance development, but it’s important to also have the capacity to repay that debt.
You pick out Ethiopia as likely to remain the fastest growing economy in sub-Saharan Africa. Is this likely to be affected by the appointment of the new prime minister recently?
We have been looking at the global trends and the potential of the country, so the answer on that is – our projections on that have not been affected by that.
Your outlook highlights one of the main risks as the situation in the US. Could you explain what threat you see here in terms of Africa’s economic growth?
The risks are more balanced moving forward although they are on the downside. The risks globally coming from the US would be more in terms of a faster pace of normalisation of monetary policy. So if interest rate adjustments were faster than expected, that could affect financial market conditions globally. Which then comes to market risks for countries having to manage their borrowings in Euro markets or external borrowing. Then of course there is that faster growth in the US is actually a plus for the global economy and for sub-Saharan Africa. Trade tensions could be a downside risk. But I think all that remains to be seen.
