When commodity prices tumbled last year, economists worldwide forecasted a steep decrease in GDP growth for many African countries. For decades, the continent has been worryingly dependent on commodities to power economic growth. So when prices collapsed, economics would also theoretically nosedive. While this was true of some nations, others managed to weather the storm. The dichotomy is most illustrated by the stark differences between the Sub-Saharan and East African regions.
According to a recent World Bank report, economic output in Sub-Saharan Africa will be significantly below the historic average of 4.4%. The waning prices and productivity underlines how exposed the world’s second fastest growing emerging market is to supply and demand fluctuations. Domestically, it has been troubled by the Ebola epidemic and other pitfalls within public health and infrastructure. Internationally, the area was plagued by China’s slowdown, declining oil prices, and a sudden deterioration in global liquidity conditions.
Even the region’s once saving grace, Nigeria, seems to have lost traction. Africa’s richest economy is now surviving on borrowed cash due to its struggles to pay government salaries. Dr. Ngozi Okonjo-Iweala, Nigeria’s Finance Minister, clearly mentioned a “difficult cash crunch” and “revenue challenges” during her address to the country’s legislature to extend the deficit allowance by $4.4 billion. And as the Parliament prepares to usher in a new government at this month’s end, their lock on federal capital expenditure will be problematic for President-elect Muhammadu Buhari to fulfill his ambitious agenda establishing sustainable economic growth above the predicted 4.8%.
Meanwhile, the East African district is thriving not only because of increased political stability and accommodative public policy, but also increased inter-state cooperation to promote foreign direct investment. I speak particularly of the East African Community (EAC), a prominent regional intergovernmental organization comprised of Burundi, Kenya, Rwanda, Tanzania, and Uganda. The EAC recently outlined a proposal to establish a $20 million fund to help boost the participation of the private sector this November. The objective: advance private sector innovation, ownership, and intervention to ultimately expand the EAC resource base. With equal contributions from all five EAC Partner States to harmonize macroeconomic and monetary policy, these East African states are taking powerful steps towards their fundamental goal of a political federation. The facilitation of unrestricted movement of goods, services, and capital around the region, coupled with the establishment of a single EAC currency, will increase the prosperity and standard of living for the general population through sustainable, robust, and inclusive growth.
What are your thoughts on the World Bank’s “African Pulse” report regarding the growth projections for Sub-Saharan and East African regions? Do you think the EAC will evolve into an economic trade bloc soon?