Document prepared for the Tenth Joint Annual Meetings of the African Union Specialized Technical Committee on Finance, Monetary Affairs, Economic Planning and Integration and the Economic Commission for Africa Conference of African Ministers of Finance, Planning and Economic Development, taking place in Dakar from 23-25 March 2017

Introduction

In 2016, overall economic growth in Africa declined drastically, dropping to 1.7 per cent, lower than the developing country average of 3.8 per cent. This growth performance was influenced greatly by outcomes in the six largest African economies and masks the remarkable growth, by at least 3 per cent, achieved by 32 countries in 2016. The resulting positive growth was generally underpinned by private consumption and investment (in infrastructure in several countries), made possible by improvements in the business and investment environments in many countries.

Even though commodity prices started to recover from the beginning of 2016 after falling for the previous two years, they still remain below their 2014 levels. This notwithstanding, growth in all the economic groups (oil-exporting, oil-importing and mineral-rich economies) slowed, registering 0.8, 2.5 and 2.2 per cent respectively in 2016. This slowdown led to uneven growth performance among the subregions, with East Africa recording the highest growth.

At the social level, the poor in Africa live much further below the extreme poverty threshold than in other regions, with an average consumption at about 60 per cent of the international poverty line. Despite numerous gains, inequality remains a key development challenge in Africa. The average within-country inequality levels in Africa are high and hamper the poverty-reducing effect of economic growth. Although significant progress has been made on the continent in terms of gender, gains have been uneven across countries and subregions and gender inequality remains a key development challenge in Africa.

The continent’s medium-term prospects remain positive, buoyed by strong domestic demand and investment (particularly in infrastructure), a robust service sector, recovery in commodity prices and the focus placed by oilexporting countries on non-oil sectors. Downside risks remain, however. The slower recovery in the global economy, consequences of the decision by the United Kingdom of Great Britain and Northern Ireland to leave the European Union, or “Brexit”, on the European Union and other major global economies, uncertainty in the policy orientation of the new United States administration, the continued economic slowdown in China, and also weather-related, political and security risks, continue to pose a challenge for African countries. The longterm growth outlook for Africa is still promising, however, as its underpinnings remain relatively strong.

African economic performance and prospects

Growth in Africa declined from 3.7 per cent in 2015 to 1.7 per cent in 2016 as a consequence of weak global economic conditions, persistent low oil prices and adverse weather conditions. Among the developing economy regions, Africa’s growth rate surpasses only that of the Latin American and Caribbean region, which contracted by 0.5 per cent in 2016.

Private consumption and investment as key drivers of growth

The positive economic growth performance in Africa was largely underpinned by the positive contributions of private and government consumption, and also by investment. Government consumption declined slightly, by 0.2 percentage points from 0.6 per cent in 2015 to 0.4 per cent in 2016. Similarly, growth of gross capital formation declined by about 0.5 percentage points, from 1 to 0.5 per cent (mostly because of lower oil prices, slowing demand across the world especially in China, persistent pressures on currencies and import restrictions). The net contribution by exports to GDP growth declined from 0.6 per cent in 2015 to -0.3 per cent in 2016, because of lower export revenues as a result of low commodity prices and subdued external demand. The contribution by private consumption also declined, from 2.7 per cent in 2015 to 1.0 per cent in 2016, because of lower agricultural production resulting from adverse weather conditions, increase in inflation and a rise in interest rates, such as those experienced in Nigeria and South Africa.

Continued decline in African trade performance

Despite achieving a 17.1 per cent increase in 2011, since then the growth rate of exports from Africa has continuously slowed, declining by 29.6 per cent in 2015 to the lowest rate of all the regions. This has come about after the vigorous recovery since 2010 of exports from Africa, which rebounded to their pre-2008 crisis levels mainly thanks, among other factors, to increased agricultural output in most of the countries in East and Southern Africa, increased investment in the mining sector in countries such as Mozambique, the Niger, Sierra Leone and Zambia, and increased demand by China for primary commodities, in particular base metals (IMF, 2015).

Exports by Africa to the world remain poorly diversified and largely dominated by primary commodities, specifically crude oil, gas and petroleum. Indeed, over the period 2010-2015, 55 per cent of African exports to external partners consisted of fuels, with manufactured goods accounting for only 18 per cent. Manufactured goods continue to dominate African imports, however, mainly comprising heavy machinery, automobiles and chemicals. They also continue to constitute the largest share of intra-African trade, averaging some 43 per cent of such trade between 2010 and 2015, although the intra-African trade share is only 16 per cent.

It is worth noting that, whereas emphasis on the industrialization of Africa is skewed towards the manufacturing sector, the sector’s share in total world manufacturing exports remains less than 1 per cent and has been marginally declining since 2010. Similarly, the sector’s share in the continent’s GDP has been slightly but steadily declining since 2010, despite the relative increase in its production. This calls for strategic diversification of the region’s export base with increased value addition, to enable it to benefit more from its accrued engagement with emerging markets such as those in Asia.