Strong domestic demand allowed Sub Saharan African economies to continue their robust growth trajectory in 2012, despite subdued global demand conditions. On aggregate the region grew at 4.4 per cent in 2012 (this includes South Sudan whose GDP recorded a double digit contraction).FN1 Excluding South Africa, the region’s largest economy, the rest of the region grew 5.4 percent, with close to a third of economies growing faster than 6 percent (figure SSA.1).
Much of this growth was supported by investments in both the resource and non-resource sectors. Net foreign direct investment inflows to the region are expected to reach about $40 billion in 2013, up from $32.1 billion in 2012. Still high commodity prices (even if easing) is supporting investments in the natural resource sectors in several economies in the region. But the growth dynamism has not come only from the resource sector as investments (both domestic and foreign) have also flowed to the non-resource sector, in particular the service sub-sectors such as finance and banking, telecommunication, transportation and retail trade. Indeed, in several economies growth in the non-resource sector was stronger than the resource sector.
Better weather conditions and associated improved harvests, decelerating inflation, relaxation of earlier interest rate hikes and increased remittance inflows ($33 billion in 2013, up from $32 billion in 2012) broadly supported the resilience in household spending, albeit with differences across countries in the region. Fiscal policy for most economies in the region remains expansive with several governments rightly emphasizing the need to address infrastructural weaknesses. Debt levels also remain low. However, compared to 2008 levels, fiscal buffers in the region are yet to be restored, and in a number of countries the expansionary fiscal policy may actually be hitting against capacity constraints.
While the overall growth story for the region has been robust, not all countries are enjoying this robust growth. Indeed, growth in 2012 was weaker in countries that encountered conflict or political instability (e.g. South Sudan, Central Africa Republic, Mali, Guinea Bissau), major labor unrests (South Africa) sharp fiscal adjustments (Swaziland) and those impacted by severe adverse weather conditions.
Going forward, the robust domestic demand factors that have underpinned Sub-Saharan Africa’s growth performance in recent years and the projected strengthening of global demand are expected to support the region’s medium term growth trajectory. Regional GDP is projected to pick up to 4.9 percent in 2013, 5.2 percent in 2014, and 5.4 percent in 2015. Excluding, the region’s largest economy, South Africa, GDP growth for the rest of the region is expected to increase by 6.2 percent in 2013 and 2014, and further strengthen to 6.4 percent in 2015. Net private capital inflows are projected to reach $77.5 billion in 2015 from $48.3 billion in 2012. Household spending will be supported by rising incomes, increased remittance flows, and a stable macroeconomic environment. Although the gradual strengthening of the global economy and increased capacity in mineral exports will support export growth over the medium term, the net exports contribution to growth is expected to be modest or even negative, on account of strong import demand (especially capital equipment).
Risks to growth prospects
Nonetheless, there exist downside risks that could derail the projected robust growth outlook. While external risks to the outlook from the Euro Area crisis, or fiscal sustainability in the United States and Japan have diminished, new domestic and external risks and challenges have gained in prominence. Notable among these is the possibility that the recent easing in international commodity prices intensifies. Our simulations suggest that, while a 25 percent decline in oil prices will be beneficial to the oil importers in the region, oil exporters would experience a cut in growth by some 1.4 percentage points, with similar impacts for metal exporters in the event of a sharp decline in industrial metal prices. Domestic risks include the possibility of overheating in economies operating close to capacity; adverse weather shocks; and political unrest. On the upside growth could be stronger if high-income countries recover more quickly than envisaged or if ongoing infrastructural investments improve competitiveness and help unlock new sources of growth.
Sub-Saharan Africa regional forecast (annual percent change unless indicated otherwise)
Source: World Bank. a. Growth rates over intervals are compound weighted averages; average growth contributions, ratios and deflators are calculated as simple averages of the annual weighted averages for the region. b. GDP at market prices and expenditure components are measured in constant 2005 U.S. dollars. c. Sub-region aggregate exludes Chad, Somalia, Liberia and São Tomé and Principe. Data limitations prevent the forecasting of GDP components or Balance of Payments details for these countries. d. Exports and imports of goods and non-factor services (GNFS). e. Oil Exporters: Angola, Cote d'Ivoire, Cameroon, Congo (Rep.), Gabon, Nigeria, Sudan, Chad, Congo (Dem. Rep.). f. CFA countries: Benin, Burkina Faso, Central African Republic, Cote d'Ivoire, Cameroon, Congo (Rep.), Gabon, Equatorial Guinea, Mali, Niger, Senegal, Chad, Togo.
Sub-Saharan Africa country forecasts (annual percent change unless indicated otherwise)
Source: World Bank. World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may differ from those contained in other Bank documents, even if basic assesments of countries' prospects do not significantly differ at any given moment in time. Liberia, Somalia, São Tomé and Principe are not forecast owing to data limitations. a. GDP growth rates over intervals are compound averages; current account balance shares are simple averages over the period. b. GDP measured in constant 2005 U.S. dollars.
Sub-Saharan Africa net capital flows US$ billions
Source: World Bank. Note: e = estimate; f = forecast