African growth was at its weakest in six years and analysts warned that things could get worse if the global economy continues to struggle. The IMF reported that the continent was likely to grow 3.75 percent this year and 4.25 percent next, a big drop from the years before and after the 2008/2009 financial crisis. China’s investment slowdown, and low commodity prices affected support to growth.
MOGADISHU, SOMALIA (FILE) (AU/UN IST) – In the second half of the year, African countries struggled to grow their economies after a gloomy outlook for the year partly caused by a slump in commodity prices and the end of a flood of cheap dollars.
In Somalia the country was encouraged to focus on strengthening the key building blocks for stability and growth as it recovers from more than two decades of civil war.
In its first review of Somalia’s economy in over 25 years, the International Monetary Fund (IMF) said the horn of Africa nation had made significant progress since it resumed relations with the international community.
Rogerio Zandamela is IMF’s top economist on Somalia.
“According to the UNDP about 73 percent of the Somali population lives below the poverty line of $2 a day. That said, the economic conditions have recovered significantly since the end of the civil war, and in particular, in 2014, GDP is estimated to have grown by about 4 percent, inflation remain low about 1 percent,” he said.
In Burundi the nation’s beleaguered economy weighed heavily on the population, as protests and political uncertainty continued in the country after President Pierre Nkurunziza decided to run for a third term.
Nkurunziza’s opponents say his bid for another five years in office is unconstitutional. He cites a court ruling that found he could run.
In the restive neighbourhood of Cibitoke, traders complained that business was slow at the time.
“I am not making any money. I hardly make enough money to eat. I used to sell cases of beer but now I am lucky if I sell even one. It’s over and there are no customers,” said Eric Nsabimana, a trader.
As China faced a sharp fall in its stock market which in turn hurt African commodity exporters, many feared that an era of Chinese-funded airports, roads and railways on the continent would be at risk.
A boom in China brought many benefits to Africa. Beijing has won fulsome praise from many governments for its willingness to finance massive infrastructure projects without conditions relating to democracy, governance and human rights – the “strings” Africa has often criticised in aid from the West.
Chinese economic growth rates averaging 10 percent a year for almost a decade fuelled a commodities “super-cycle” which lifted Africa’s own growth to unprecedented rates.
“Because China is such an important player on the world market especially in respect of the demand for commodities the fact that it is slowing down and the demand for commodities is falling has resulted in the demand in commodities prices themselves declining sharply and this has resulted in the currencies of countries that are heavily depending upon exports in commodities to suffer,” said economic analyst Aza Ajamin.
In Kenya, a cash flow crisis being faced by the government saw the shilling lose 14 percent against the dollar this year and interest rates climb by 300 basis points in October.
At the same time, two mid-tier commercial banks were placed under receivership by the Central Bank of Kenya (CBK).
This included Imperial Bank Kenya Ltd which left customers in anxiety about the fate of their deposits should the company go into liquidation.
Analysts said it was a temporary scenario and was not indicative of systemic economic faults in the country.
“It is a temporary thing which should not be viewed as a picture of the economic performance of the country. Similarly for the banking sector, what happened to Imperial bank and Dubai bank previously should not be seen as something that is prevalent for the whole banking sector and is not a reflection of the whole industry. It is not a systemic problem,” said Habil Olaka, the Kenya Bankers Association, chief executive.
The World Bank’s Africa pulse report announced in October, that economic growth in Sub-Saharan Africa was set to slow to 3.7 percent this year from 4.6 percent in 2014, its weakest pace since 2009, mainly due to the drop in commodity prices.
Factors hampering growth vary among countries. In the region’s commodity exporters, especially oil-producers such as Angola, Equatorial Guinea, and Nigeria, as well as producers of minerals and metals such as Botswana and Mauritania, the drop in prices is negatively affecting growth.
In Ghana, South Africa, and Zambia, domestic factors such as electricity supply constraints are further stemming growth. In Burundi and South Sudan threats from political instability and social tensions are taking an economic and social toll.
“The Pulse finds that with weaker global market conditions, underpinned by sharply lower commodity prices, as well as a slowdown of growth in China, and tightening global financing conditions, all these factors are weighing down on Sub Saharan Africa’s growth,” said Punam Chuhan Pole, the acting chief economist, at World Bank Africa and Africa’s Pulse Report Author.
The report said Ivory Coast, Ethiopia, Rwanda, Mozambique and Tanzania are still expected to grow robustly, posting 7 percent or more growth per year between this year and 2017.
Tanzania which has a reputation as one of the politically stable countries in the region, and one of the fastest-growing economies in east Africa was gearing up for elections at a time when world commodity prices were taking a hit and unemployment was on the rise.
Campaigns exposed public frustration with the pace of change in a country endowed with gas and mineral deposits but lagging behind other regional economies.
“We have families, we have children, wives, we have people we are taking to school and our parents in the countryside depend on us because we live in the city like other successful people. I think we are very key shareholders in this country especially youths who make up the biggest percentage of the population. People here do not have jobs, we are tired of being told everyday that jobs will be created. This has become a propaganda tool that politicians are using so that we can vote for them,” said Amani Kameo, a trader in the Dar es Salaam.
Overall, growth in the region is projected to pick up to 4.4 percent in 2016, and further strengthen to 4.8 percent in 2017.
The World Bank recommends that countries focus on more investment in new energy capacity, attention to drought and its effects on hydropower, reform of state-owned distribution companies, and renewed focus on encouraging private investment will help build resiliency in the continent’s power sector.