Debt overhang looms over Africa fragile economic recovery—World Bank

Africa’s pace of economic growth is set to pick up this year but the recovery remains patchy and debt levels are soaring, adding urgency to the continent’s drive to boost trade, experts told the World Economic Forum on Africa. There are clear bright spots. Five of the world’s fastest-growing economies – Ghana, Ethiopia, Senegal, Côte d’Ivoire and Rwanda – are in sub-Saharan Africa, said Albert Zeufack, Chief Economist for Africa at the World Bank. Still, the macroeconomic threats to the region are growing as escalating trade tensions between China and the United States threaten a global slowdown.

“The risks to the macro outlook are mostly on the downside,” Zeufack said. “The recovery on the continent will remain fragile.” Rising debt levels are fuelling vulnerabilities, especially as external debt is shifting from the public to the private sector, making it imperative to keep Africa’s growth engine humming smoothly. “For as long as you have improving growth prospects and for as long as you are able to contain deficits, then the debt situation can be contained,” said Lesetja Kganyago, Governor of the South African Reserve Bank. The African Development Bank forecasts the continent’s GDP will increase by 4.0 per cent this year, up from 3.5 per cent in 2018, putting its growth rate ahead of the global average. But the World Bank has a more cautious view for sub-Saharan Africa, where growth is expected to increase to 2.8 per cent from 2.3 per cent in 2018.

Worryingly, growth in Africa’s two largest economies and its biggest democracies, South Africa and Nigeria, is holding the continent back. Kganyago said stripping out these two from the calculation leaves the rest of Africa with a much more respectable growth rate above 5 per cent. Whatever the final figures, though, it is clear Africa needs to move up a gear if it is to make a dent on chronic unemployment levels and offer hope to millions of youngsters now entering the workforce, thereby capitalising on a much-vaunted “demographic dividend. Having a youthful continent is a huge opportunity but a huge threat as well. It’s a threat if we do not get that population to start really working,” said Zeufack. Massive investment will be needed to give the next generation of Africans the skills needed for jobs in the services and manufacturing sectors as Africa diversifies away from reliance on volatile commodities.

The continent also has to close a huge infrastructure gap if it is to realise the promise of the recently created African Continental Free Trade Area (AfCFTA). That means better roads, ports, railways, air links and networks of fibre-optic cables. A borderless Africa holds vast potential but getting there will take many years and require close collaboration with the private sector – the only viable source for much of the capital needed for infrastructure upgrades. Currently, Africa has the lowest percentage of intra-regional trade in the world at just 18 per cent, compared with 70 per cent in Europe. Even a modest improvement, driven by the AfCFTA, would unlock significant growth by allowing industries to develop across borders and create economies of scale.

“I think it’s a game-changer. We’re talking about 1.2 billion people on the continent and a combined GDP of $3.4 trillion,” said Olusola David-Borha, Chief Executive, Africa, at Standard Bank Group. “Those countries that prepare early, I believe, will be the winners.” Much of the industry of tomorrow will have a digital backbone, she added, changing the employment landscape in Africa, just as the Fourth Industrial Revolution is upending work practices globally. Kganyago said this requires a new mind-set from organised labour and a shift away from outmoded views of job protection. “You can’t protect jobs – it’s just a wrong approach. We can protect people and that is what we should be focusing on,” said the South African central bank head.

The 2019 World Economic Forum on Africa takes place 4-6 September in Cape Town, South Africa, under the theme Shaping Inclusive Growth and Shared Futures in the Fourth Industrial Revolution. The meeting will convene more than 1,000 regional and global leaders from government, business, civil society and academia. This gathering will explore new models to help Africa achieve success at a time when technology is creating dramatic economic and societal shifts. The meeting’s highly interactive programme will also cover issues as diverse as skills and education, the ocean economy, the economic impact of drones, free trade and e-commerce. The Co-Chairs of the 2019 World Economic on Africa are Ellen Agler, Chief Executive Officer, The END Fund, USA; Jeremy Farrar, Director, Wellcome Trust, United Kingdom; Arancha Gonzalez Laya, Executive Director, International Trade Centre (ITC), Geneva; André Hoffmann, Vice-Chairman, Roche, Switzerland; Alex Liu, Managing Partner and Chairman, A. T. Kearney, USA; Jim Ovia, Chairman, Zenith Bank, Nigeria; and Sipho M. Pityana, Chairman, AngloGold Ashanti, South Africa.

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