Economic gains in Africa ‘may be tempered by China’, IMF warns

Economic activity in the region continues to be underpinned by large investments in infrastructure, mining and maturing investments, said the IMF’s Regional Economic Outlook for Sub Saharan Africa.

However, the report warned that the high growth enjoyed by many sub-Saharan African nations in recent years has been supported by strong growth in the largest emerging market economies. “Should growth in these countries – and particularly in China – slow much more than currently envisaged, the implications for the region could be significant,” the report said.

In the event of a slowdown, the IMF said many countries in sub-Saharan Africa would be certain to face lower export demand. The outlook for some commodity prices, particularly copper and iron ore, “would likely also be grim, with adverse implications for further mining investment for these commodities”.

The report noted that “a significant share” of sub-Saharan Africa’s trade is now taking place with emerging markets. One-third of non-oil exports of the region now go to the BRICS group of countries (Brazil, Russia, India, and China) compared with less than 10% a decade ago. “Apart from the direct demand channel, growth in the BRICs, notably China, has fuelled growth in sub-Saharan Africa through high commodity prices and investment inflows,” the report added.

Weaker commodity prices and slower growth in emerging markets may also reduce net inflows of foreign direct investment (FDI), “which are particularly important in natural-resource-rich low-income countries and fragile states, the report warned. “These factors could also reduce external investors’ interest in the exploration and development of new sources; and softening economic conditions in originating countries could result in the postponement or rescaling of some of these initiatives, particularly ‘greenfield’ projects that are still in the early phases of development.”

Nevertheless, the report said overall growth across sub-Saharan Africa “should remain in the top 30% in the world”. “Growth is expected to accelerate in all country groups, especially fragile states and oil exporters.”

In Nigeria, the IMF projects growth to be “broad based”, rising to about 7% in 2014 and 2015 as major oil pipelines are repaired and non-oil output continues to expand.

Growth in middle-income countries is projected to increase by about 0.3 percentage points in 2014 and accelerate further in 2015 – helped by sustained exports, especially to advanced economies, in addition to “ongoing investments and improved business confidence”.

The report said growth in South Africa is set to improve “modestly”, supported by strengthening external demand but “dragged by tightening global financial conditions and domestic monetary policies, soft commodity prices, tense industrial relations and continuing supply bottlenecks, including in energy”.

According to the IMF, growth is expected to remain strong or accelerate in other countries with the help of “massive investments in infrastructure” (in Ethiopia), mining (in Liberia, Mozambique, and Uganda), improved transportation (Mozambique) and expanded productive capacity in the energy sector (Ethiopia, Tanzania) and mining (Democratic Republic of Congo, Ghana, Mozambique, Niger and Sierra Leone).

The report said total investment in sub-Saharan Africa is set to remain at 23.8% of gross domestic product in 2014 and 2015, “strengthening somewhat among low-income countries and fragile states”, where it is expected to be supported by FDI in extractive industries and infrastructure.

Sustained economic expansion and job creation in the region will require continued sound macroeconomic policies and the removal of “structural distortions” – which needs to be supplemented by “significant improvements in infrastructure to lower the cost of doing business and increase output”, the report concluded.

A recent report by the World Bank said net FDI inflows to sub-Saharan Africa increased by 16% to a near-record $43 billion in 2013. The bank said FDI was boosted by new oil and gas discoveries in countries including Angola, Mozambique and Tanzania.

In the first 10 months of 2013, China's direct investment in African non-financial sectors increased 71.6% percent year-on-year to $2.54bn, according to Chinese Ministry of Commerce figures reported recently by the country’s state-run Xinhua News Agency. The vice-chairman of the China council for the Promotion of International Trade, Zhang Wei, told Xinhua that more than 2,000 Chinese companies are investing in Africa in sectors such as agriculture, infrastructure, finance, logistics and construction.