Africa’s rise is stalled by the Chinese slowdown
Enthusiasts for the “ Africa Rising” story of rapid growth on the continent have spent much of the past 15 years strongly denying that the impressive economic performance was essentially about selling commodities to China. That confidence is currently being severely tested.
Prospects have darkened considerably. Growth momentum in much of sub-Saharan Africa is petering out. The International Monetary Fund reckons that growth rates in the region this year will fall to their lowest since before the global financial crisis and recover only marginally next year.
Like many emerging economies, sub-Saharan African nations are discovering that a disturbing proportion of the rise in growth since 2000 was based on exporting expensive raw materials and importing cheap capital. China is the region’s biggest trading partner, and a fall in revenue from selling commodities there is hurting African economies.
Unsurprisingly, the worst-affected are the oil producers such as Nigeria and Angola, hit hard by the fall in the global price of crude. The IMF has cut from 7 per cent to 3.5 per cent its predictions for growth this year in the eight main oil-exporting countries, which make up about half of sub-Saharan Africa’s gross domestic product.
Some slowdown was inevitable, but governments have not prepared well. Having failed to use enough of their bumper revenues over the past decade to rebuild reserves, many are coming into the commodity crunch with less fiscal space than they went into the global financial crisis.
Middle-income countries with significant commodity exports have also been feeling the pinch. Ghana, for example, has been disadvantaged by falls in gold prices. It also stands as a cautionary tale about how mismanagement of natural resources can turn a boon into a curse.
Ghana discovered oil in 2007 and began pumping it in 2010. But rather than reduce government debt, hold the revenues offshore in a standalone fund or indeed invest it domestically to increase productive capacity, Accra bought domestic popularity by using anticipated revenue to triple the salaries of the civil service and expand energy subsidies, and borrowed heavily from abroad.
In the latter course, it was not alone. Several African countries issued eurobonds for the first time in their history as the search for yield in a world of super-low interest rates drove investors to hitherto neglected corners of the developing world.
In Ghana’s case at least, the foreign borrowing spree looks even more foolish now than it did at the time. The country’s sovereign debt yields have spiralled, the currency has plunged and this summer the government called in the IMF for a rescue.
Sub-Saharan African countries do not appear to have seized the opportunity of a favourable external environment to diversify and strengthen their economies sufficiently to thrive despite a change in that environment. Weak business environments and poor infrastructure need to be improved if they are to rise beyond their traditional patterns of dependence on the vagaries of the commodity and capital markets.
The pessimism should not be overdone. The continent contains huge potential, and the growth slowdown is less dramatic than in other emerging markets. Still, underdevelopment and inequality remain high. The idea that sub-Saharan Africa was embarking on a sustained growth surge that would lift large swaths of its population out of poverty has for the moment proved overly optimistic. |
