Africa’s Growth Prospects Remain Robust

Vodafone PixAfrica’s economic growth prospects remain “relatively robust” and are expected to be supported by improvements in the global economic and regional business environment, rallying commodity prices, easing infrastructural constraints and swelling trade and investment ties with emerging economies, the United Nations (UN) World Economic Situation and Prospects 2014 (WESP) report has revealed.

Released in Johannesburg on Tuesday, it stated that after estimated gross domestic product (GDP) growth of 4 per cent in 2013, the continent’s growth is projected to accelerate to 4.7 per cent in 2014 and 5 per cent in 2015.

Further drivers of Africa’s medium-term growth prospects include an increase in domestic demand, most notably associated with a growing consumer class, as well as improvements in economic governance and management.

While continental growth prospects remained solid, the WESP report revealed that other economic indicators varied.

Among these, inflation across Africa is expected to decelerate slightly from an average of 8 per cent in 2013 to 7.8 per cent in 2014, while the continent’s average fiscal deficit increased from 1.35 per cent of GDP in 2012 to 1.8 per cent in 2013.

Moreover, Africa’s overall current-account deficit was expected to slightly decline from 1.8 per cent of GDP in 2013 to 1.7 per cent in 2014.

While acknowledging Africa’s predicted growth trend, which was heavily driven by commodity production and exports, the UN noted that this growth remained “far below” the continent’s potential.

“Growth is still failing to translate into meaningful job creation and the broad-based economic and social development needed to reduce the high poverty and rising inequality rates in many countries.

“The informal sector is still large and opportunities remain limited for many seeking to enter the labour market, as seen by high youth unemployment rates and wide gender disparities in earnings.

“Continual pressure on labour markets from a steady stream of new entrants, owing to population growth, has meant that even solid GDP growth rates have not been sufficient to make measurable impacts,” the organisation stated.

The lack of economic diversification away from the “heavy” dependence on resource extraction or agriculture was further cited as a key reason for an underwhelming demand for labour.

However, continued growth in other sectors such as telecommunications, financial services, transport and construction in countries such as Ghana, Kenya and Nigeria is expected to somewhat offset the growth encumbrances.

In addition, the recent “strong” performance of Africa’s mineral sector was considered by the report to again demonstrate the importance of mining to the continent’s economic growth, as well as the potential for greater linkages between mining and the economy as a whole.

“It is time to transform Africa’s economies by capitalising on high demand and investment, and enhancing linkages between mining and manufacturing,” the WESP report stated.

Despite the expected robust growth prospects, some significant internal and external downside risks and uncertainties could derail progress in Africa, the UN cautioned.

Changes in global commodity prices and terms of trade were key risk factors, while political, civil and labour unrests still posed  significant threats to economic activities in several African countries.

“In addition, with many African economies relying on agriculture, weather-related shocks represent a key downside risk for economic growth and upside risk for agricultural prices,” the report concluded.

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