World Economy

Africa Needs Reforms, Better Fiscal Management

Sub-Saharan Africa’s growth will average 1.4% this year.Sub-Saharan Africa’s growth will average 1.4% this year.

Africa’s economic outlook is worsening because of poor political and financial governance. This exacerbates the effects of lower commodity prices and an unfavorable global economic environment.

Martyn Davies, the managing director for emerging markets and Africa at Deloitte, said this week that Africa’s two biggest economies–Nigeria and South Africa–were dragging overall African growth lower, Fin24 reported.

This at a time when the continent was facing rising risks such as slowing growth in China, weakening currencies, ratings downgrades and climate change. To reverse the downward growth trajectory, the continent required deep structural reforms.

Described by Davies as “politically difficult to do”, such reforms include better management of state-owned enterprises and improved governance structures.

 “We need to see the rise of economic reform-minded leadership across the continent,” Davies told City Press, after presenting a paper on growing risks to Africa’s growth story at a one-day Deloitte conference, held in Johannesburg.

“It is much more about economically literate governments–governments which can do a lot more with a lot less, as opposed to doing a lot less with a lot more–which ultimately have significantly better political and financial governance of these countries.”

The International Monetary Fund has forecast that sub-Saharan Africa’s growth will average 1.4% this year, signaling the slowest pace in 20 years and almost half that of 2015.

The monetary organization attributed this to the region being weighed down by an unfavorable global environment and inadequate policy responses in many commodity producers, such as South Africa and Nigeria.

With the region’s GDP per capita also dropping for the first time in 22 years, that meant the region was in recession, Davies said.

He added that better fiscal management and reforms would probably see South Africa’s economy grow by between 5% and 5.5% in the medium term.

Overall, southern Africa’s growth was deeply disappointing, with the exception of Botswana and Namibia–ironically, two economies largely dependent on South Africa.

Turning to Nigeria, Davies made mention of President Muhammadu Buhari’s efforts to solve the crisis caused by lower oil prices through policies he initially tried in his first term of office, from 1983 to 1985.

Even though the oil sector made up about 15% of GDP, Nigeria still relied on it for more than 80% of its export earnings, hampering the ability of companies to do business, Davies said.

The diminishing fiscal space for many governments was also increasing regulatory risk, as seen in large fines levied on companies such as MTN Group in Nigeria and Exxon Mobil in Chad, Davies added.

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