News Column

Bank Touts Oil Dividend for Region

June 16, 2014

Ethiopia, Kenya, Tanzania and Uganda are expected to post strong growth supported by foreign direct investment flows into offshore natural gas resource in Tanzania, the onset of oil production in Uganda and Kenya, and agriculture in Ethiopia.

The authors of the World Bank Global Economic Prospects (GEP) report released last week say economic activity was robust in much of Sub-Saharan Africa in 2013.

According to the report, 'At the sub-regional level, growth is expected to be strong in East Africa, increasingly supported by FDI flows into offshore natural gas resource in Tanzania, the onset of oil production in Uganda and Kenya, and agriculture in Ethiopia'.

In contrast, developing countries in general are headed for a third consecutive year of disappointing growth below 5 percent, as first quarter weakness in 2014 has delayed an expected pick-up in economic activity.

"Growth rates in the developing world remain far too modest to create the kind of jobs we need to improve the lives of the poorest 40%. Clearly, countries need to move faster and invest more in domestic structural reforms to get broad-based economic growth to levels needed to end extreme poverty in our generation," World Bank Group President Jim Yong Kim said in a accompanying statement.

Despite emerging challenges, medium-term growth prospects for sub-Saharan Africa remain favourable. However the report emphasises that strong domestic demand underpinned GDP growth of 4.7 % in 2013, up from 3.7 % the previous year.

That the regional aggregate was depressed by weak 1.9% growth in South Africa due to structural bottlenecks, tense labor relations and low consumer and investor confidence.

The GEP report stated further that excluding South Africa, average regional GDP growth was 6.0% in 2013; fiscal and current account deficits widened across the region, reflecting high government spending, falling commodity prices, and strong import growth.

The World Bank's GEP states that regional GDP growth is projected to remain stable at 4.7% in 2014, strengthening to 5.1% in each of 2015 and 2016, supported by supported by firming external demand and investments in natural resources, infrastructure, and agricultural production.

The strengthening recovery in high-income countries bodes well for export demand and investment flows, although weaker commodity prices and slower growth in emerging markets will moderate growth of FDI flows to the region to $32.5 billion in 2014, from $31.9 billion in 2013.

Nevertheless, eh report said the move would support growth in many countries.

"Besides FDI, the continued focus on expanding public infrastructure to ease supply bottlenecks is expected to provide further impetus to growth in the region. The inflation outlook is expected to remain favorable across the region, although prices will trend higher due to higher food prices in some countries or pass-through from currency depreciations in others, particularly Ghana and South Africa," stated the global economic prospects report .

Tight monetary policy combined with labor strikes and weak electricity supply will keep growth subdued in South Africa. In Angola, after a slowdown in 2013, growth is expected to pick up moderately in 2014, supported by improved oil production and infrastructure investment."

The global economy is expected to pick up speed as the year progresses and is projected to expand by 2.8 percent this year, strengthening to 3.4 and 3.5 percent in 2015 and 2016, respectively.[1] High-income economies will contribute about half of global growth in 2015 and 2016, compared with less than 40 percent in 2013.

The acceleration in high-income economies will be an important impetus for developing countries.

High-income economies are projected to inject an additional $6.3 trillion to global demand over the next three years, which is significantly more than the $3.9 trillion increase they contributed during the past three years, and more than the expected contribution from developing countries.

Short-term financial risks have become less pressing, in part because earlier downside risks have been realized without generating large upheavals and because economic adjustments over the past year have reduced vulnerabilities. Current account deficits in some of the hardest hit economies during 2013 and early 2014 have declined, and capital flows to developing countries have bounced back.

Developing country bond yields have declined, and stock markets have recovered, in some cases surpassing levels at the start of the year, although they remain down from a year ago by significant margins in many instances.

Markets remain skittish and speculation over the timing and magnitude of future shifts in high-income macro policy may result in further episodes of volatility.

Also, vulnerabilities persist in several countries that combine high inflation and current account deficits (Brazil, South Africa and Turkey).

The risk here is that the recent easing of international financial conditions will once again serve to boost credit growth, current account deficits and associated vulnerabilities.

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Source: AllAfrica

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