Nigeria, South Africa dragging Sub-Saharan Africa’s economy down — IMF
The International Monetary Fund (IMF) has said that Nigeria and South Africa will continue to draw back the economic growth of the rest of Sub-Saharan Africa if steps are not taken to address the policy uncertainties holding back growth in the two countries.
In its latest “Regional Economic Outlook” report launched on Tuesday in Abuja, the IMF said although economic recovery in most parts of Sub-Saharan Africa is expected to pick up from 3 per cent in 2018 to 3.5 per cent, the aggregate growth rate in the two countries in 2019 is expected to be about 2.1 per cent.
The report said the growth rate in the region, expected to stabilise slightly below 4 per cent or reach 5 per cent in 21 countries, will exclude Nigeria and South Africa, the region’s two major economies.
“Half of the region’s countries, mostly non-resource-intensive, are expected to grow at 5 per cent or more, and see a faster rise in income per capita than the rest of the world on average over the medium term,” the report said.
“However, the remaining 24 countries, comprising mostly resource-intensive countries, including Nigeria and South Africa, which are more than two-thirds of the region’s total population, are expected to fall behind,” it added.
Nigeria’s growth expected to rise in 2019
In Nigeria, the IMF said recovering oil output will drive growth rate from about 1.9 per cent in 2018 to about 2.1 per cent in 2019, with near-term outlook expected to remain subdued due to lower crude oil prices.
The report identified external pressures, namely trade tensions, volatile global financial conditions and low commodity prices, and climatic conditions affecting agricultural output and policy uncertainties as domestic drawback to economic growth.
Other external challenges weighing on growth include rising debt profile of some countries and weak public balance sheets, with reserve buffers below levels considered adequate for the countries’ economic development.
Also, the report noted the impact of high non-performing loans, saying it continues to put a strain on financial systems, while weak public financial management systems manifest in large domestic arrears with potential effects on growth.
Resolving the challenges
Central to resolving these challenges is building physical space, enhancing resilience to shocks and fostering an environment conducive for sustained high and inclusive growth.
The IMF said the downside risks to growth underscores the need to accelerate reforms and pace of policy adjustments to ensure any shift in policies was consistent with credible medium-term macro-economic objectives, available finance and debt sustainability.
To address these challenges, the Fund said countries in the region must step up efforts at revenue mobilization, ensure efficient public investment, strengthen public financial management, contain fiscal risks from state-owned enterprises, improve debt management and resolution frameworks and enhance debt transparency.
Other solutions include enhancing exchange rate flexibility in countries outside monetary unions and strengthened monetary policy and financial systems.
The report also called for the creation of an environment that fosters a dynamic private sector, by addressing the constraints to business cooperation and deeper trade integration in the region through the African Continental Free Trade Area (AfCFTA).
The AfCFTA agreement has the vision to eliminate tariffs on most goods, liberalization of trade of key services, address non-tariff obstacles that hamper intra-regional trade and creating a continental single market with free movement of labour and capital.
CBN’s interventions to maintain stability
The Central Bank of Nigeria (CBN) deputy governor in charge of Economic Policy Directorate, Joseph Nnanna, identified high unemployment and under-employment rate and huge infrastructure deficit as the long-standing constraints to Sub-Saharan Africa’s growth.
Mr Nanna said the situation in Nigeria, where majority of the able young men and women are employed below their capacity by the informal sector, is a reflection of the experience in Sub-Saharan region.
He said Nigeria needs more than anything else is an inclusive growth that would allow everyone share in the wealth of the nation.
“The capitalism we practice will give capitalism a bad name. It needs to be more inclusive,” he said at the presentation of the IMF report at Transcorp Hotel, Abuja.
On what the CBN has been doing to create a more stable economic environment, the deputy governor said since July 2016 when the economy was coming out of recession, the CBN has been embarking on tight monetary policy.
Although the price level has not reached a comfortable level, he said the CBN’s target is inflation rate of between 6 and 9 per cent single digits.
He said with different categorization of inflation, in terms of core, food and headline, the CBN is currently at the upper level of single digits.
“We are on the path of striking the price stability hold and the lower side of the single digits before the end of fourth quarter of 2019,” he said.
In terms of growth, he said Nigeria was making steady progress towards the end of the year to achieve an average of 2.8 and 3 percent GDP (gross domestic product) growth rate.
He described the level as insufficient for the country, as the country’s population growth rate outstrips growth rate at about 3.2 percent.
He assured international investors in the money and capital markets that the CBN would maintain positive interest rate in real terms to guaranty healthy returns on their investments.