Global growth is projected to strengthen to 3.9% in 2018 up from 3.7% in 2017, benefiting from the improvement of market sentiment, still-accommodative financial policies, strong global demand, and synchronised output expansion in both developed and developing economies, according to the African Export-Import Bank (Afreximbank) outlook to economy performance that will affect the scene in 2019.
According to Afreximbank’s latest report, in developing economies, growth is projected to accelerate slightly to 4.9% 2018, from 4.8% in 2017, benefiting from the strong economic performance in developing Asia, led by India, and by a pickup in Brazil and Russia.
While growth in African economies is projected to accelerate to 4.1% in 2018, from 3.7% in 2017 thanks to continuing recovery in developed economies and stronger global demand, with positive repercussion for commodity prices and Africa’s merchandise trade in the short run.
The report proposed that the main factors expected to accelerate economic growth in Africa are the strengthening of major oil-producing economies, especially Nigeria, Angola, and Libya, combined with stronger economic growth in Egypt and an improving macroeconomic and business environment.
For trading performance, Africa’s total merchandise trade gathered momentum, growing by 10.6% in 2017, to $907.63bn, up from $820.76bn in 2016. The recovery and expansion of African trade was in line with global trade and reflected continued tightening of trade links between developing economies in the South and Africa, the resilience of intra-African trade, and dynamics in the commodity market. In effect, the sustained recovery in commodity prices, especially those with export interests to Africa, were also key factors behind the remarkable turnaround in Africa’s merchandise trade in 2017, according to the report.
In particular, with oil accounting for over 45% of African exports, the gradual strengthening of crude oil prices has greatly helped reverse the downward trajectory in the region’s trade. Oil exporters saw a strong upsurge in their export performance, with exports growing by 26.3% in 2017, to $140.7bn, from $111.4bn in 2016, as major oil-exporting African countries saw robust recovery in their export growth.
Nigeria, Africa’s largest economy and biggest oil producer, came out of recession aided by a strong uplift of its exports, which grew by 22.4% in 2017, after a contraction of over 30% in 2016. Angola and Libya, the second- and third-largest oil exporters in the region, respectively, also saw a strong rebound in their exports in 2017, which grew by 27.2% in Angola, after a contraction of 27.2% in 2016, and 130.3% in Libya, after a contraction of 29.9% in 2016. The two countries were thus able to emerge from recession because economic activity, government revenue, and access to hard currency improved.
At the same time, continued recovery in non-energy commodity prices also boosted the exports of African net oil-importing countries by 38.8% in 2017, after a contraction of 25.9% in 2016, thus contributing to the reversal in the growth of the region’s total merchandise exports, which was estimated at 17.8% in 2017, after a contraction of 12.7% in 2016.
The continued strengthening of commodity prices was supported largely by the synchronised output expansion in developed economies, especially Canada, Japan, and the US, faster-than-expected growth in some countries in the euro area, such as France and Germany, and reacceleration of growth in China.
Although this good performance, the report captured a number of challenges that confronts trade performance in the continent, including high costs related to poor quality of infrastructure and logistics, low processing capacity, and overwhelming dominance of primary commodities and natural resources. These are key constraints to enhancing international African countries’ competitiveness in the exporting sector mainly.
On the other hand, Africa’s total merchandise imports posted a strong recovery, according to Afreximbank, growing by 5.4% in 2017, to $502.28bn, after a contraction of 10.9% in 2016, but remained below the $534.97bn in 2015.
The resurgence of growth in Africa’s imports was driven largely by recovery in foreign reserves, as export receipts rebounded on account of sustained improvement in commodity prices, spurred by strengthening global demand, developments that attest to the progressive consolidation of gains realised during the recovery process, towards normalisation of economic activities.
In this generalised recovery, where most countries implemented difficult reforms, including measures to ease rationing on foreign reserves, oil-exporting African countries saw imports rise by 0.3% in 2017, after a contraction of 16.9% in 2016, supported by robust import growth in Nigeria. This modest increase derives from the fact that the group was the hardest hit by the sharp decline in oil prices and the consequent dry out of foreign reserves and other related macroeconomic challenges.
However, net oil importers realised significant gains, with the value of their imports growing by 7% in 2017, to $444.73bn, from $415.7bn in 2016. This development arose as revenues from non-oil commodities improved, while adjustments to increasing oil price bills remained gradual, especially while oil prices remained much lower than the pre-crisis level.
Hence, strong import growth in several large countries, including Côte d’Ivoire 10.5%, Egypt 4.9%, Kenya 16.3%, Morocco 9.3%, South Africa 10.7%, and Uganda 33.4%, significantly contributed to the increase in Africa’s merchandise imports in 2017.
Furthermore, the appreciation of several African currencies against the US dollar, especially those pertaining to a monetary union, combined with the gradual recovery of foreign reserves and improving macroeconomic environment increased the import capacity of many oil-importing countries.
Accordingly, nine out of the 15 countries in the CFA franc zone saw imports growth increase in 2017, as did three of the four members of the Common Monetary Area in Southern Africa. African governments and the private sector are embarking on ambitious initiatives to further diversify exports and national economies through increased processing capacity and industrialisation. As a result, demand for capital goods continued to rise, especially as foreign reserves recovered, helping raise the value of imports in the region. However, given that exports increased faster than imports, Africa’s trade deficit narrowed significantly in 2017, to $39.22bn, from $129bn in 2016.