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| Africa`s richest square mile and arguably its symbol of economic clout-Sandton City in Johannesburg, South Africa. |
In May 2000, The
Economist ran with a cover titled, “The hopeless continent”, painting stark
gloomy picture for Africa. Fast forward just over a decade later, and the
narrative had changed. In its 2011 December issue, the cover of The Economist
read, “Africa rising.” True to form, Africa had transformed from a warring,
stagnant and object of disdain to a fast growing economic region alive with
possibility.
Africa continues to
impress, and its development over the years has seen many lives transformed on
the continent. For instance, between 1981 and 2005, Africa`s poverty headcount
ratio rose at each three year interval from 205 million in 1981 to 395 million
in 2005, statistics reveal. And in 2008, the ratio fell by 12 million to around
47%. The trend has been continuing since then. This data and several other
indicators reflect the extent of the progress that has been made on the
continent.
But there are key
downside risks that could potentially thwart this sustained growth and
development in Africa going into 2015. Below are some of these critical risks
Africa faces going into the New Year. The risks are in no particular order of
importance.
Ebola
Health Threat
First discovered in
the Democratic Republic of Congo in 1976, the current Ebola outbreak first
reported in March 2014 and has been declared an international public health
emergency by the United Nations is the deadliest outbreak to date. Ravaging
countries in West Africa, the disease has claimed the lives of over 7,388 lives
in Guinea, Liberia, Sierra Leone, Nigeria and Mali, among these, Liberia has
been the hardest hit, with 3,346 deaths reported.
As the disease
continues to leave untold destruction in its path, the economic and social cost
on the affected economies is big. The International Monetary Fund at the start
of the year forecasted a GDP growth rate of 11, 3 percent for Sierra Leone, 5,9
percent for Liberia and 4,5 percent for Guinea in 2014. However, following the
outbreak as well as some of its associated costs on these economies, the IMF
revised the earlier growth forecast downwards to 8 percent, 2, 5 percent and 2,
4 percent for Sierra Leone, Liberia and Guinea respectively.
Going into 2015, the
threat of Ebola may become more pronounced on the affected economies as their
already stretched revenues are directed towards fighting the disease, instead
of developmental expenditure. Furthermore, crucial economic activity is halted as
small and large businesses alike are sometimes forced to shut down to contain
the spread of the disease. Though the WorldHealth Organisation has declared
outbreaks in Nigeria and Senegal as officially over, the Ebola virus still
poses a great deal of a challenge for Africa as a whole. For instance, Mali is
presently battling a second wave of the outbreak, illustrating that concerted
and co-ordinated international and local responses ought to be implemented to
decisively deal with this disease.
Slumping
Commodity Prices
The big talking point
in the recent months has been that of the falling price of oil. Since June of
this year, prices of the commodity have nearly halved, with Brent Crude trading
at $60 per barrel for the first time in almost 5 years. Undoubtedly, oil
exporting countries have been adversely affected, with some of them recording
revenue shortfalls as a result. Nigeria an OPEC member, and hugely reliant on
oil revenues which make up of over 75 percent of its total inflows was forced to restate its budget basing it on
a lower oil price of $65 from $77,40. Other oil exporting countries like Angola
(1,9 million barrels per day) and Equatorial Guinea (346,000 barrels per day)
are likely going to be affected in the same manner too.
This is only one side
of the falling commodity prices equation. Moving away from oil, the Bloomberg
Commodity Prices Index which tracks 20 commodity prices in September this year
fell to a four year low, raising concerns of how a slowing Chinese (which
recently surpassed the USA as the world`s largest economy according to the IMF)
economy has meant weaker demand for most commodities. As Africa remains largely
a commodity based economy-exporting raw materials, the impact of weakening
commodity prices such as metals and agricultural products will likely weigh
down on growth in the coming year as revenues will be constrained.
Military
Extremism
Over the years, Africa
has had to contend with a number of interstate as well as intrastate conflicts,
caused in part by power struggles, fights over resources, and tribal
disagreements. Recently, however, military extremism has been on the rise. In a
space of over 10 days, Kenya recently experienced two terrorist attacks that
killed civilians. First was the bus attack, where insurgents attackers
non-Muslims off a Nairobi bound bus, and killed 28 people, mostly teachers
returning home for the holidays. Then there was the attack at a quarry in
Kormey, a town near the Somali border, where armed Islamist gunmen shot and
beheaded 36 workers at the quarry. This came little over a year after the
Westgate mall attacks of last year which killed at least 67 people. These
events show how the Al Shabaab linked extremism has been gaining traction in
the region.
Kenya is not alone in
this ordeal. Nigeria too has been under the cosh, with Boko Haram causing havoc
in the country. The wave of military extremism has been sweeping through parts
of northern and sub-Saharan Africa at an alarming pace, with al Qaeda in the
Maghreb focusing on North Africa and al Shabaab and Boko Haram more active in
southern parts of the continent. If military extremism is unaddressed, it will
destabilise governments and destroy the important social, economic and
political gains Africans have made in recent years, says Fen Osler Hampson the
director of global security at the Centre for International Governance
Innovation.
Sustained
Appreciation of the US Dollar
Africa too like most
emerging market currencies faces significant threats from the continued firming
of the dollar. Typically, a stronger dollar leads to weaker emerging market
currencies as well as lower commodity prices. Earlier this year, the dollar
strengthened from $1.40/€1 to lo below $1.30, paving way an 11th straight week
of gains-its longest winning streak in 40 years. The appreciation of the dollar
has been a result of higher Gross Domestic Product, and improved growth
prospects in America. And as is the case with a stronger dollar, African
currencies have taken a beating with some of them including the South African
Rand hitting record lows against the dollar this year.
With increased
expectation of normalisation of the US monetary policy in 2015, and a
suppressed Eurozone, the dollar will likely keep appreciating in the new year,
to the detriment of most emerging market currencies. Theoretically, a weaker
currency would make a country`s products cheaper in the eyes of foreigners, implying
an expansion of its exports. However, as has been seen in Africa, particularly
South Africa, exports have not been able to pick up, owing in part to
protracted strikes in the mining sector as well as other structural bottlenecks.
Therefore, countries like Ghana, South Africa, and Kenya which have high ratios
of imports to GDP will be the hardest hit by inflationary pressures due to
weakening currencies. Furthermore, pressure will be felt on the current account
deficits of the affected countries, which in turn will likely cause an increase
in interest rates, further constraining economic growth in Africa.
These risks are likely
going to pose significant challenges going for the continent going into 2015,
and will likely stand in the way of Africa`s sustained development. It will be
interesting to see how governments and policy makers choose to respond to these
threats especially considering that the coming year will be a particularly
important one for Africa as it takes stock on its progress in meeting the
United Nations Millennium Development Goals, whose deadline is 2015. Whether
Africa`s orchard remains green and colourful will therefore depend on a
coherent and effective response to these challenges.
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