Sub-Saharan growth to slump to 3.6% this year – World Bank

Sub-Saharan Africa’s economic growth is expected to decline to 3.6% in 2022, down from the 4% growth registered in 2021, as the region continues to battle the effects of the Covid-19 pandemic, rising inflation, supply chain disruptions and climate change shocks.

This is according to the World Bank in its latest Africa Pulse biannual report, released on Wednesday.

Despite the slowdown, the report sees the region’s growth picking up in 2023 and 2024, to an estimated 3.9% and 4.2% respectively.

“The growth deceleration in 2022 reflects several short-term headwinds, the slowdown in the global economy, lingering effects of the coronavirus pandemic, elevated inflation, rising financial risks owing to high public debts reaching unsustainable levels, continued supply disruptions, and the war in Ukraine,” the organisation notes in a statement.

SA growth

Although the report acknowledges that economic recovery across the region cannot be homogenous, of the region’s top three largest economies South Africa is expected the see the largest decline for 2022.

South Africa’s economic growth is expected to be 2.8 percentage points lower in 2022 due to what the organisation refers to as “persistent structural constraints”.

Its peers Angola and Nigeria are expected to see better numbers this year, with economic growth for 2022 expected at 2.7 and 0.2 percentage points higher. The World Bank cites elevated oil prices as well as good performance in the non-oil sectors as contributors to this growth.

Alternative view

A quarterly analysis of SA’s economic growth performance by BankservAfrica indicates that the country could see strong gross domestic product (GDP) growth in the first quarter of 2022.

The BankservAfrica Economic Transactions Index (Beti) reached an all-time high of 135.9 index points in March 2022, with the standardised nominal value of transactions at a record R1.6 trillion and a 13.3% increase in the number of transactions.

A monthly review of the Beti shows March at 1.5%, while 2.2% was reported in February. However, a quarterly review indicates that the Beti seasonally adjusted increase was 2.4%.

“Based on these figures, we believe that South Africa’s economic GDP figures for Q1 2022 will increase at its fastest rate since Q2 2021,” says Mike Schüssler, chief economist at economists.co.za.

He adds: “One must remember that the local economy has also been boosted by the high commodity prices and large-scale government spending, as some confidence seemingly returns for businesses and consumers.”

Africa not out of the woods yet

According to the World Bank, although the region has managed to come out of its first recession in 25 years – which was induced by the Covid-19 pandemic – the continent is yet to make a pre-pandemic economic recovery.

World Bank chief economist for Africa Albert Zeufack says the continent is still reeling from the long-lasting effects of the pandemic as well as climate change related shocks seen in the last two years.

“It’s quite clear that potential output for Africa would still be at 4% lower than pre-crisis levels in 2022, so we haven’t caught up with the pre-pandemic potential output. While in advanced countries, they are likely to come back to pre-covid-19 potential output in 2022,” he says.

“The long-lasting effects of Covid-19 on our economies are probably what are driving the deceleration in growth, probably more than the Ukraine crisis itself,” Zeufack adds.

Solutions?

He says African countries should look to implement smart fiscal policy to contain the surge in prices, and trade policy and monetary policy to stimulate growth in the short term.

“As African countries face continued uncertainty, supply disruptions and soaring food and fertiliser prices, trade policy can potentially play a key role by ensuring the free flow of food across borders throughout the region,” he says.

“Amid limited fiscal space, policymakers must look to innovative solutions such as reducing or waiving import duties on staple foods temporarily to provide relief to their citizens.”

Earlier this week, South Africa saw organisation in the poultry sector make varying calls for government to help combat rising chicken prices.

The SA Association of Meat Importers and Exporters called for the removal of all trade tariffs on chicken imports and the suspension of new tariffs for the next three years, while the South African Poultry Association called for a partial scrap of value-added tax (Vat) on the chicken products most consumed by the poor.

Read: Poultry association rejects call for suspension of tariffs on chicken imports 

Russia-Ukraine crisis

Resource-rich countries are expected to see positive impacts on growth because of the Russia-Ukraine crisis, but the World Bank notes that inflationary pressures resulting from the crisis will affect poor and vulnerable urban dwellers the most as they tend to consume more imported foods.

“The impact is going to be through urban poverty and certainly affecting populations that are just above the poverty line, and the risk is that they could actually be brought down to poverty,” says Zeufack.

“There could be a risk of social strife as this urban population [is] certainly seeing [its] purchasing power considerably reduced.”

Forecasting what the impacts of the Russia-Ukraine crisis on inflation could be should the conflict not last much longer, Zeufack says: “If the shock is temporary and conflict is relatively brief then we may expect inflation to peak at around 6% to 7% in 2022 and then come down progressively to maybe 4% in 2024, and in 2025 it may be back to where it was in 2021.”

However, adds that should the crisis persist, and birth more permanent effects, African economies will be faced with a much more devastating reality.

Read: SA records price volatility in essential foods, hurting the poor