Commodities, industry, and the African Growth Miracle.

Author:Page, John
Position:Blog
 
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The 2016 Spring Meetings of the International Monetary Fund (IMF) and World Bank occur during uncertain times for the "African Growth Miracle," After more than two decades of sustained economic expansion, growth in sub-Saharan Africa slowed to 3,4 percent in 2015, the weakest performance since 2009, The growth slow-down reflects lower commodity prices, declining growth in major trading partners, and tightening borrowing conditions. According to the World Bank, many of these factors--including low commodity prices and weak global trade--are expected to persist, pointing to a weak recovery for the region. GDP growth is expected to pick up to 4.2 percent in 2016 and to 4.7 percent in 2017-18. With population growth still about 2.7 percent per year, progress against poverty and growth of the emerging African middle class will slow.

The impact of commodity price shocks

Africa's pattern of exports makes it particularly vulnerable to commodity price shocks. Fuels, ores, and metals accounted for more than 60 percent of the region's total exports in 2010-14 compared with 16 percent for manufactured goods. Following sharp declines in 2014, commodity prices weakened again in 2015. The prices of oil and metals, such as iron ore, copper, and platinum, declined substantially, accompanied by more moderate declines in those of some agricultural commodities, such as coffee. Commodity prices are expected to stabilize but remain low through 2017. A sharper-than-expected slowdown in China could have additional repercussions. The World Bank estimates that in the space of two years a 1 percentage point drop in China's growth could result in a decline in average commodity prices of about 6 percentage points.

In its January 2016 Global Economic Prospects report the World Bank proposes a policy solution to Africa's continued vulnerability to commodities: "creating the conditions for a more competitive manufacturing sector." Sadly, while advocating "structural reforms... to alleviate domestic impediments to growth [and] a major improvement in providing electricity," the Bank is woefully short on specifics. This is hardly surprising. Beyond supporting improvements in the "investment climate"--structural reforms by another name--and pushing its Doing Business agenda, the Bank and the larger donor community have ignored Africa's industrialization challenge for more than 20 years.

Africa's failure to industrialize

By any measure Africa's failure to industrialize is...

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