Sierra Leone Telegraph: 21 October 2019:
Last week the International Monetary Fund (IMF) launched its Regional Economic Outlook for Sub-Saharan Africa in Washington.
The event was chaired by the IMF’s Director of African Department – Abebe Aemro Selassie, who spoke about the economic prospects of Sub-Saharan Africa, amid growing fears of a global economic slowdown as threats of a US-China trade war heightens. This is what he said:
Good afternoon everybody. Thank you again for joining us today for the launch of the Regional Economic Outlook for Sub-Saharan Africa.
Before I take your questions, I will briefly lay out recent economic developments in the region and the policies we feel are needed to facilitate stronger growth.
Growth in Sub-Saharan Africa is expected to pick up, though at a slower rate than previously envisioned. For this year, we are projecting growth at around the 3.2 percent mark, rising to 3.6 percent in 2020. Relative to April, we have seen growth revised down for about two-thirds of countries this year, albeit by a modest 0.3 percentage points for the region as a whole.
By and large, this revision reflects the more challenging external environment and some countries’ specific circumstances. For example, policy uncertainties are holding back investment in some of the larger economies in the region. Furthermore, I would like to stress that growth prospects continue to be quite varied across Sub-Saharan Africa.
In particular, non-resource intensive countries are expected to grow at about 6 percent, almost three times faster than the growth rates that we are seeing in the more resource intensive countries, reflecting this 24 or so non-resource intensive countries, home to about a half a billion people, will see per capita income rising markedly faster than the rest of the world.
In commodity reliant or resource intensive countries, however, growth is at around the 2.5 percent mark. For these 21 countries, in per capita terms, growth remains lower than much of the rest of the world.
In addition to the outlook I just outlined, there are some downside risks that we see. On the external front, this risk relates to rising protectionism, potential rising risk premiums for international markets, and faster than anticipated slowdown in trading partners, like China, the Euro area, should it materialize.
And then other risks are related to failure to implement fiscal policies as envisioned to help stabilize debt levels.
Against this backdrop, a three-pronged strategy can help reduce risks and promote sustained and inclusive growth. First, the near-term policy mix in countries needs to be carefully calibrated. In general, fiscal space is limited in countries, thus the room for supporting growth in the face of excellent headwinds remains mainly on the monetary policy side, particularly for countries where inflation remains below targets and growth is also below potential.
Second, countries should continue to build resilience through economic shocks, in some cases increasingly frequent weather-related disasters, and heightened security challenges in other parts of the region also.
This of course requires countries to continue to strike a balance between investment needs and avoiding debt sustainability problems, making sure that public sector, public fiscal management remains effective, avoiding the build-up of domestic arrears and other challenges that we’ve seen, something that we covered in our Regional Economic Outlook, and importantly, continuing the efforts to diversify economies to reduce reliance on commodity exports.
The third area where we feel some attention is needed is to of course continue to make sure that growth remains labour intensive to be able to create jobs for the millions of people that are entering the labour market each year. Opportunities for reform include, measures to facilitate the implementation of the AFCFTA now that it has been ratified by most countries in the region.
Another area where some attention is needed is facilitating competition between firms and enterprises in the region. Again, some analytical work we’ve done this time around in our Regional Economic Outlook shows the significant potential there is to facilitate competition that raises growth, improves welfare, by promoting faster competition between firms.
Before I end, and we open the floor for questions I would like to stress that, we remain of the view that Sub-Saharan Africa remains a region of tremendous potential. And while the global environment has become somewhat uncertain, there is much that countries in the region can do to boost growth and resilience to external shocks.
Finally, I want to also put a forthcoming conference on your agenda. Together with the government of Senegal, the Fund will be hosting a conference on Sustainable Development, Sustainable Debt, on December 2nd in Dakar.
The objective of the conference is to identify policy proposals and approaches to address how best countries can strike a balance between addressing development needs and avoiding debt vulnerabilities. A lot of the analysis that I spoke about is in our Regional Economic Outlook, which has just been published today.
QUESTIONER: I would want you to speak about the AFCFTA. Now that countries have signed, what policy framework do you see member nations coming up with to ensure that the desired target is met? And with Nigeria closing her borders, her land borders to neighbours, do you see it in any way impacting the nation’s neighbouring countries.
I also want you to speak about inclusion that the IMF has been talking about, female inclusion, the clamour for gender balance, how do you perceive it to be playing out, especially in the workplace in Sub-Saharan Africa.
MR. SELASSIE: On the AFCFTA, this is one of the most exciting policy developments across the region in recent months. We covered this extensively in our April Regional Economic Outlook, we did quite a bit of analytical work in there. What it showed is that there is tremendous potential from the initiative that can help facilitate higher economic growth.
One of the things about inter-Africa trade is that when countries are trading with the rest of the world, we tend to export natural resource commodities. So Nigeria exports oil to the rest of the world.
But trade between countries tends to be that of manufactured, more processed goods. Partly of course this is because most countries produce natural resources so they don’t trade that with each other but they export it. So, it’s a kind of trade that we want to facilitate, and the AFCFTA I think will do that subject to tariffs, of course, being lowered, which is what the agreement deals with. But also not other barriers to trade being opened up.
So one is like non-tariff barriers, even without tariffs, there tends to be barriers. Other things that hamper trade is infrastructure. So that also needs to be addressed. So again, it is a major initiative, important, but now the hard task of making sure that it is implemented is going to be important to facilitate the trade that we need to see between countries in the region.
On the border closure in Nigeria which has been impacting Benin and Niger, our understanding is that the border has been closed, reflecting concerns about smuggling that’s been taking place, illegal trade, not the legal trade that you want to facilitate. So we’re very hopeful that discussions will resolve the challenges that this illegal trade is fostering. To be sure if the border closure was to be sustained for a long time it’s going to definitely have an impact on Benin and Niger, which rely quite extensively on their big brother next door.
So, we hope that there will be a resolution to that. On gender balance, promoting that, I think it’s fair to say over the last several years, we have increased our focus, our attention to inequality — gender and inequality in the region in particular.
In terms of policy intervention that is needed, unfortunately, we still see some policies that are in place that hamper the full participation of women in the workforce; women’s ability to inherit land; who have access to financial services.
So, I think the first policy priority really is to make sure there are no policy induced barriers to women’s participation in economic life to a full extent. Once those have been eliminated, or as those are being eliminated, I think there are other more traditional type barriers that need to be addressed. So, addressing those will be important.
And then third, I think consideration will need to be given to more positive interventions to make sure that women’s participation in economic life and political life remains as strong as it is. As our managing director points out, you cannot have a vibrant economy with half the workforce being kept out, or not participating fully in the economic life of our countries. So, there is not just an advanced country major market issue, but something that’s, if anything, more prevalent in our region. So, again, this is something much attention is needed.
QUESTIONER: The ECOWAS commission had outlined their intention to float a common currency among the ECOWAS commission. And they came out with a template of what the currency would look like. And we’re hoping, of course, that will take effect by shortest possible time.
What will be impact of this single currency in the region. And secondly, there’s been this outcry of issues concerning insecurity in the region. Talking about xenophobic attacks in some of the countries and how does this affect, trade treaties between the countries and how can it be surmounted.
MR. SELASSIE: On the plans for a new ECOWAS currency, leaders and the ECOWAS commission have done the right thing in laying out very clearly what the preconditions that needs to be put in place for are for the creation of a currency. So, those preconditions, of course, already include convergence criteria and making sure that you have some real convergence, economic convergence before you move to creating a single currency.
And, it’s important to follow the steps and the conditions that have been laid out there as countries move toward creation of this currency. So, we, look forward to seeing how that is being implemented in the coming months.
On the xenophobic attacks that have taken place in some countries and unfortunately have resulted in the loss of so much life, I think it’s a big challenge what has been taking place. I don’t know what to say other than that making sure that remains contained. Much less spilling over into bigger disputes is going to be really, really, important. There’s a big element which is criminal and so I hope, we’re policing and better understanding between people will tackle that.
QUESTIONER: Still on the free trade continental agreement. I wanted to react to worries that the big economies, Nigeria, South Africa, Ghana and Ethiopia and the rest will may wipe out economies in other countries. In terms of stronger manufacturing and exportation of goods.
And I would like you to tell us the impact of climate change in the African economies. We already seen some of the effect around the Lake Chad basin where you have millions of people affected and the risk of starvation. And do you think that Africa is ready for the green economy.
MR. SELASSIE: On the first question about the possibility that the bigger economies dominating markets in the region, of course this can be a problem but the smaller economies have opened up their markets to China, to European countries and the like. So, even assuming that Nigeria or Ethiopia will dominate their sub-region, is it preferable to be dominated by China rather than Ethiopia and Nigeria, I don’t know.
When you have structural change that is dislocation there can be losses in some sectors. The key thing is whether it’s opening up to China, to Europe versus to Nigeria. The key really is about making sure that you have policies in place to support sectors that may be dislocated.
And that in general more competition, other things equal tends to be a bit better than having this situation where you’re not trading with each other. Again, it’s not to minimize the potential source of dislocation, but I think there are steps that can be taken to address potential areas that are dislocated.
Climate change is of course, something that we think about all the time. In our work, we see the issue both in a short term sense, but also more medium term perspective. In the near term, how it affects our work, the number of countries that are being impacted by climatic events and natural disasters which seem to be getting a bit more frequent. I don’t know if it’s simply been that we’re recording and being more aware of them.
So, most recent one, of course, is cyclone Idai followed quickly by cyclone Kenneth. We are trying to provide support to countries as they are being impacted by these shocks as quickly as we possibly can. So, that’s one way in which we’re dealing with the somewhat uncertain climate. Right now, we have a drought in Southern Africa. We’re trying to assess the impact of that in countries like Zimbabwe, Zambia and giving policy advice and support there.
And then there’s the more medium-term issue, more medium-term challenges arising from things like, the desertification that is happening in places across the Sahel. People are attributing some of the population’s pressures, the tensions that you’re seeing to population movements induced by climate change, trying to understand that.
How can government policies, be more climate resilient? How can investment be more climate resilient. We are trying to think through these things and support governments as much as we are able to.
QUESTIONER: You mentioned the implementation of this Free Trade Agreement has the potential to boost medium-term economic growth for the region.
Has the IMF done calculations to see the extent to which it can boost growth? If the baseline is a set number, how much can it add?
MR. SELASSI: We have actually — one of the analytical chapters in the April WEO, was very much on the AFCFTA, and we have a lot of outreach material related to that online also. So, I invite you to look at that. Our estimates was that growth — trade, intra-Africa trade would be increased by at least — close to, between 16 and 20 percent, or so, as a result of the AFCFTA.
But once you factor in other factors it could be higher still. But again, beyond the volume, the increase in trade, what’s also really interesting is this other element of the trade being in manufactured goods. A lot of debate and discussion in the region is about how can we facilitate more diversification, higher value-added goods being traded?
That’s really also the other element that’s exciting beyond just the increase in numbers.
QUESTIONER: My question borders on poverty in Sub-Saharan Africa. The numbers in the area of poverty is quite frightening in Sub-Saharan Africa, and this has remained a concern with government initiating policies to ensure that they’ll be able to lift a number of citizens out of that. One instance is that of Nigeria where they have a 10-year projection to lift about 100 million people out of the extreme poverty.
And yet, the Central Bank of Nigeria is playing a very critical role through interventions, and there are other intervention programs by government. What programs would you recommend that could fast track the realization of this very projection.
MR. SELASSIE: One of the things that strikes me about Nigeria is just the variation in both economic outcomes, but also development, and social outcomes across this very, very large country. So, you have, in part of the country very, very elevated levels of poverty; very elevated levels of infant mortality, maternal mortality — really important indicators of wellbeing — are very high in some parts of the country; and in other parts of the country are comparatively very low. So, there’s this big variation in poverty outcomes, economic outcomes, in your country.
So, a really important focus is to try and identify those areas where these outcomes are really weak and, perhaps, region specific, intervention is going to be needed. And the other one, that’s growth – overall growth in the country as a whole should be much higher than it is at the moment.
Continuing on the diversification agenda would be really important in this regard; reducing reliance on oil, which tends to dominate the country; having a business environment that facilitates investments, across the country; more policy certainty will all be important; and, again — we must sound like a broke record when it comes to Nigeria.
The key way in which, of course, the government can address poverty, can address that challenge is by investing more in infrastructure, in health, in education — and that requires resources; and that can only come from higher non-tax revenues, which remain very low at 7/8 percent in the country.
So, if there is, a single policy lever that the government could address over the next couple of years, it is this non-tax revenue. But, this is not lost on policymakers and the 2020 finance bill is seeking to address that.
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