Africa to grow at 5.2% in 2014; up from 4.7% in 2013
Mauritius, Rwanda, and Tanzania are especially cited as model case studies for globalization of services, which is expected to play a crucial role in the continent’s growth. (Image: Wikipedia)
Africa continues its upward growth trajectory with economic growth in Sub-Saharan Africa (SSA) forecast by the World Bank (WB) at 5.2% in 2014 from 4.7% in 2013.
The crucial role that globalization of services could be expected to play in the continent’s growth is also highlighted in WB’s new Africa’s Pulse, a twice-yearly analysis of the issues shaping Africa’s economic prospects.
Mauritius, Rwanda, and Tanzania are especially cited as model case studies. All three East African economies saw modern services exports record annual growth rates of over 10% between 2005 and 2012.
In both Mauritius and Rwanda, rapid expansion in modern services is a result of increased activity in tradable business and financial services. Over 60% of those employed in large companies in Mauritius work in the service sector, which offers more employment opportunities than either agriculture or manufacturing.
However, at over $50 billion, the region’s services exports currently trail all other developing regions; however, it is expanding annually at about 12 percent, on average. Modern services exports in the region have increased their share by nearly 10 percentage points from just over 26 percent of total services exports to about 36 percent over the same period.
Besides enhanced trade in services, rising investment in natural resources and infrastructure, and strong household spending is expected to power Africa’s growth, continues the report.
Across Africa, healthy growth was seen in resource-rich countries, including Sierra Leone and the Democratic Republic of Congo. Besides, non-resource-rich countries, particularly Ethiopia and Rwanda, also experienced solid economic growth in 2013.
Further, investors continued to be bullish on the Africa growth story, spurred on by new oil and gas discoveries in many countries including Angola, Mozambique, and Tanzania. Capital flows to SSA reached an estimated 5.3% of regional GDP in 2013, significantly above the developing-country average of 3.9%, while net foreign direct investment (FDI) inflows to the region grew 16% to a near-record $43 billion in 2013.
Moreover, lower international food and fuel prices, and prudent monetary policy helped keep prices in check. Inflation slowed in the region, growing at an annual rate of 6.3% in 2013, compared with 10.7% a year ago. However, some countries such as Ghana and Malawi, continued to suffer rising prices due to depreciating currencies.
Finally, remittances to the region grew 6.2% to $32 billion in 2013, exceeding the record of $30 billion reached in 2011. These inflows, combined with lower food prices, boosted household real incomes and spending.
However, challenges to growth remain. Africa’s Pulse says across Africa, unreliable and expensive electricity supply and poor road conditions continue to impose high costs on business.
It notes that while GDP growth in the region is expected to remain stronger than in many other developing countries worldwide, a number of important risks remain, notably a decline in commodity prices on weaker Chinese demand, volatile food prices spurred by unfavourable weather conditions, and political instability.
Further, Africa’s Pulse says that export diversification remains a tough challenge for many African countries, especially oil producers.
But, there is hope, according to Francisco Ferreira, Chief Economist, World Bank Africa Region.
Ferreira says total exports to the BRICs surpassed the region’s exports to the European Union (EU) market in 2010 and continue to grow. In 2012, the region’s exports to the BRICs reached $145 billion. China alone accounted for about a quarter (23.3 percent) of the region’s total merchandise exports.
On the flip side, this shift in trading partners also underscores the region’s vulnerability to any slowdown in the BRICs, particularly China.