2017 will be a critical year for Africa. After many years of high growth rates, many African countries are facing potential headwinds that can jeopardise their future. Within the horizon, there are many major storms forming and sailing through these troubled waters will be treacherous. Indeed, the journey ahead will not be a smooth sail at all.
2016 has been an intense year with many unexpected events happening in the world. Two main ones are Brexit and the election of the Republican candidate Donald Trump as the next President of the US. The aftermath of these two events will unfold in 2017 with many uncertainties ahead.
The World Bank just released its Global Economic Prospects, January 2017 report. For 2016, the global growth rate is estimated to have been 2.3%, whereas the sub-Saharan African region is estimated to have grown at 1.5%. This means that for the first time since 2001, sub-Saharan Africa have drastically underperformed global growth.
If we look deeper at the statistics, particularly at the period prior and post the great financial crisis of 2008, we will find that from 2001 till 2008, sub-Saharan Africa had been growing at an average of 5.9%, whereas from 2009 till 2016, its growth has dropped to 4.1%. From 2013 onwards, the region’s growth rate has been on a constant decline.
As for the major north African economies – Algeria, Egypt and Morocco – representing more than 25% of the African gross domestic product (GDP), their economic growth rate for 2016 is estimated at 3.6%, 4.3% and 1.5% respectively. Compared with their respective 16-year average growth rate of 3.7%, 4.2% and 4.4%, only Morocco has underperformed, while Algeria and Egypt have had a nearly on-par growth rate.
By and large, for the African continent, the main issue is whether the uncertainties in 2017 will bring about an upturn or a deeper downturn. There are many looming threats that may stall Africa’s growth, but every cloud has a silver lining. If the African governments anticipate and proactively build resilience in their economies, they may be able to overcome these economic shocks.
Commodity prices weakness
One reason for the massive decline in sub-Saharan Africa’s growth rate is that the three main African economies – Angola, Nigeria and South Africa – representing about 40% of the African GDP, are facing major economic difficulties.
For 2016, their growth rates are estimated to be at a low of 0.4%, -1.7% and 0.4% respectively, compared to their 16-year average of 7.5%, 6.9% and 2.9%. Both Angola and Nigeria are suffering from the steep decline in oil prices, whereas South Africa is facing major political uncertainties with the Jacob Zuma administration.
Commodity prices over the last year have recovered slightly. For 2016, the Bloomberg Commodity Index has increased by about 12%, but compared to the beginning of 2014, it is still down by about 30%. Referring to the recently released Pink sheet from the World Bank, the 2016 annual price averages for crude oil and natural gas are still down by about 56% and 49% respectively, when compared to the 2014 averages.
For precious metals – gold, platinum and silver – when compared to 2014, their 2016 annual price averages are still down by 1.3%, 28.7% and 10.5% respectively. Similarly, for base metals like aluminium, copper, iron, nickel and tin, their 2016 annual price averages are down by 14.1%, 29.1%, 39.7%, 43.2% and 26.6% respectively. Even for agricultural commodities like cocoa and arabica coffee, the 2016 averages are still down by 5.6% and 20.1% respectively.
All African countries that depend mainly on these commodities for export, have been severely affected by the significant drop in commodity prices since 2014. This has contributed to the massive drop in the African economic growth over the past few years. Although prices have slightly recovered in 2016, they may not go to their previous highs in 2017.
According to the UN Conference on Trade and Development (UNCTAD), low-income countries will be especially vulnerable to commodity price volatility. For Africa, the top five low-income countries that may be at risk, are Equatorial Guinea, Angola, Mauritania, Sierra Leone and Chad. In 2014, their commodity exports as a percentage of their GDP were 78%, 48%, 39%, 33% and 30% respectively.
Therefore, in this current difficult environment, African governments can seize the opportunity to restructure their economies by undergoing economic diversification and liberalisation of certain industries. Diversification by promoting and supporting other high potential industries will enable them to move away from natural resources, whereas liberalisation can attract foreign investments, which can move economies up the value chain.
The UK triggering Article 50 and Trump as the in-coming President of US are the two major storms that can have an enormous impact on Africa, as well as the global economy. Both are the results of populism, with people in Europe and US increasingly embracing protectionism and anti-globalisation. As a result, both events will bring about a lot of uncertainties that will affect Africa’s relations with Europe and the US. This will in turn affect the African economic growth in 2017.
Despite the fact that growth in Africa as a whole has dropped significantly in 2016, World Bank data show that there are 31 African countries that grew by at least 3%, compared to 2015. Moreover, 13 countries grew by at least 5%, more than twice the global growth rate.
The top five fastest growing African economies in 2016 are Ethiopia, Côte d’Ivoire, Tanzania, Senegal and Djibouti. Their respective growth rates are 8.4%, 7.8%, 6.9%, 6.6% and 6.5%. Compared to 2015, the top five best performers in terms of growth improvement in 2016 are Niger, Mauritania, Eritrea, Madagascar and Burkina Faso. These countries improved their 2016 growth rate by at least 30%, with Niger improving by 42.9%.
For 2017, growth in sub-Saharan Africa will improve with an overall forecast growth rate of 2.9%, which is slightly above the global growth rate of 2.7%. Moreover, 39 out of the 54 African countries will grow by at least 3%. Of these countries, 20 will grow by at least 5%. The 2017 best performers will be Ghana and Mozambique, improving their annual growth by a staggering 108.3% and 44.4% respectively.
Major African economies, like Angola, Nigeria and South Africa, are facing economic difficulties and will marginally improve their performance for 2017. However, despite the disappointing overall figures for Africa, there are many other African countries that are improving by leaps and bounds. For some, their journey may be full of ups and downs, but it will be a learning process that will build and strengthen their resilience.
Strengthening economic partnerships
In the current sluggish economic environment, there are many potential opportunities that African leaders can tap into. For instance, with Europe and the US increasingly looking inwards, they can turn eastward and build better economic partnerships with the rising Asian economies like China and India.
Chinese Foreign Minister Wang Yi just completed an Africa tour, visiting Madagascar, Tanzania, Zambia, Congo and Nigeria. Rwandan President Paul Kagame and Kenyan President Uhuru Kenyatta just visited India, wooing the Indian business community and meeting up with the Indian Prime Minister Narendra Modi.
Other opportunities will be about strengthening the economic integration within the various regional economic communities, in order to increase intra-African trade. We should not forget that Africa represents 1.2 billion people. This represents an enormous domestic, regional and continental market that should be tapped upon for growth. Last, building institutions for better governance as well as economic reforms, will be key to attract foreign investors in the future.
Sailing through the troubled waters in 2017 will require a very skillful captain and crew. They will need to proactively take actions to avoid dangerous reefs ahead. Like the African proverb says, ‘A roaring lion kills no game!’, Africans and Africans leaders are the masters of their destiny. Ultimately, they will determine whether they can continue on overcoming adversity for future success.
The author, Richard Li, is a partner of Steel Advisory Partners, Singapore. This article was written specifically for NTU-SBF Centre for African Studies, a trilateral platform for government, business and academia to promote knowledge and expertise on Africa, established by Nanyang Technological University and the Singapore Business Federation.