Africa's 2019 economic outlook, according to AfDB

ABIDJAN — In recent years, African heads of state have frequently broadcast to the world that their continent is “open for business.” It has attracted more than $95 billion in foreign direct investment over the past two years. However, as those investments begin to see a slow decline, African Development Bank experts say that regional integration is now more pertinent than ever in continuing the continent’s economic growth. Africa experienced 3.5 percent real gross domestic product growth in 2018, similar to its 3.6 percent growth in 2017, according to the AfDB’s report “2019 African Economic Outlook,” released in this month. East Africa remains the continent’s fastest-growing region and is expected to reach 6.1 percent growth by 2020. Violence and insecurity could be to blame for Central Africa being the continent’s weakest performing region, with just 2.2 percent growth; while West Africa reported a “stable outlook” driven by recovery in Nigeria and strong growth in Côte d’Ivoire and Senegal. “When we talk about freer movement of people, goods, services with the largest free-trade area in the world, even with the best intentions, certain things need to take place for that promise to be fulfilled.” --— Charles Boamah, senior vice-president, AfDB The monumental Africa Free Trade Agreement — an effort to create the world’s largest free trade area between all 55 member states of the African Union — would, when complete, cover more than 1.2 billion people and a market size of $3 trillion. While the African Union waits for a required 22 countries to ratify the agreement for it to take force, AfDB experts say that uniting the continent in such a way is key to its continued economic growth and stability. “Regional integration is a central piece of the bank’s work … When we talk about freer movement of people, goods, services with the largest free-trade area in the world, even with the best intentions, certain things need to take place for that promise to be fulfilled,” AfDB Senior Vice-President Charles Boamah told Devex. Improved regional integration could bolster the continent’s prosperity with an increased market size, and create the types of economies of scale needed to foster competition. A more inclusive regional growth could also foster peace and security at a deeper level by alleviating poverty, Boamah explained. But challenges remain, including limited rural road networks and aviation links between countries, which present physical barriers and constraints; while a lack of government capacity exacerbates regulatory weaknesses. And there are other challenges to the continent’s growth rate. Gender and fragile states will remain cross-cutting focuses of this year’s agenda, Boamah said. While AfDB expects growth in Africa to continue to surpass that of other emerging markets, such as Central America and parts of Asia, it is projected to remain below that of China and India, according to the report. Drivers and challenges Economic diversification and a recovery in commodity prices are expected to push growth in the region, the bank’s Director of the Macroeconomic Policy, Forecasting and Research Department Hanan Morsy said during the report’s launch at the bank’s headquarters in Abidjan. “In this case, it is not just [countries] developing a positive rebalancing of growth, but a better quality of growth coming from net exports rather than consumption,” Morsy explained further. Consumption’s contribution to real GDP growth declined from 55 percent in 2015 to 48 percent last year, while investment’s contribution increased from 14 percent to 48 percent. Net exports, which have historically stymied economic growth, have had a positive contribution since 2014, the report noted. However, Morsy added that economic forecasts are sensitive to external risks such as the impact of normalization of global interest rates, an ability to finance additional debt and uncertainties based on tensions between the United States and China — which could all have repercussions for Africa. AfDB representatives noted that economic growth in Africa will largely depend on its inclusion of youth and women, with a demographic dividend that has the potential to drive the continent or accelerate its downfall. Morsy warned that what worked to stimulate job growth in other developing regions, such as telecommunications and extractive industries, may not be the solution for Africa. However, she emphasized the low attention being paid to manufacturing possibilities. “Manufacturing-driven growth has the highest impact on job creation,” Morsy said. “It’s the only type of growth that has positive job creation across the board in all sectors and has a type of spillover effect that services-driven or agriculture-driven instances cannot achieve.” Agriculture, which currently makes up roughly 60 percent of the continent’s GDP, must become more automated to increase productivity, reduce losses, and make the sector more profitable — most importantly for smallholder farmers, but also for the sector at-large, Morsy argued. “The huge infrastructure deficit in manufacturing is urgently required to promote significant acceleration of [other] infrastructure development [projects] on the ground,” Boamah added. Encouraging regional business An estimated 2.3 million jobs are sacrificed annually due to business constraints on firms, which could be reduced by almost half by removing restraints such as complex licensing and permit regulations, political instability, and corruption, Morsy noted. The African Economic Outlook report warns that these challenges could become “detrimental obstacles to both creating new jobs and maintaining existing high-quality jobs in the formal sector.” Morsy shared trade policy actions that could improve job security, including eliminating existing bilateral tariffs in Africa, removing all nontariff barriers on goods and services, synchronizing financial governance frameworks across the region, and reducing the time to cross borders. Boamah noted that regional organizations must become more integrated, more aligned, and more simplified. Morsy said the Africa Free Trade Agreement offers a way to harmonize the overly-complex current structures. With limited domestic resource mobilization, countries may have to borrow to finance the projects needed to boost regional integration, but Boamah said it is up to government leaders to ensure that the debt incurred is used properly for the development of infrastructure that leads to inclusive growth. “Transparency, visibility, good governance over policy decisions and the predictability of policies are all indicators that the right investment climate exists and we all agree that this is what is needed to really move the needle,” he said.