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The Africa Confidential Blog

  • 5th October 2018

IMF/WORLD BANK: 'The road ahead is bumpy' - warnings on growth, debt and productivity in Africa

Patrick Smith

Finance ministers and central bank governors are heading to Bali, Indonesia for the annual meetings of the Bretton Woods institutions, where they will consumed by the threats of the expanding trade war, rising public debt and ructions in the international banking system a decade after the United States financial crisis triggered a recession in the West and a global slowdown. This week, The Zondo commission in South Africa has been hearing some spectacular testimony about local businessmen and Russian nuclear contracts from Finance Minister Nhlanhla Nene. And Nigeria's main opposition party is to pick its candidate this weekend (6-7 October) to challenge President Muhammadu Buhari in next year's elections.

IMF/WORLD BANK: 'The road ahead is bumpy' – warnings on growth, debt and productivity in Africa
Africa's recovery from the commodity crash and poverty reduction are slowing while rising indebtedness is threatening economic stability: those are some of the alarming messages from the World Bank and International Monetary Fund as they prepare for their annual meetings next week (8-12 October) in Indonesia. Both organisations concede that there have been serious problems with their data on Africa and other developing regions and are looking for ways to measure economic well-being, beyond the gross domestic product formula.

That said, the raw GDP data for Africa's growth path is not promising. The latest edition of Pulse, a 120-page World Bank analysis on economic trends in Africa, reckons growth levels have picked up 2.7% this year from 2.3% last year but had revised down their original projections by 0.4 percentage points.

This is because the Bank has cut its projections for growth in Angola, Nigeria, and South Africa, the three largest economies in the region. Pulse summed up: 'The road ahead is bumpy'. The IMF's forecasts are a tad more bullish, reckoning an average growth rate of 3.4% this year up from 2.8% last year. But it adds that even if average growth levels were to hit 4% this year, this translates into just 1% in GDP per head because of the region's high birth-rate.

To get beyond the inadequacies of the GDP measure, the World Bank is taking a wider view of economic expansion, based on what it defines as four types of capital: produced (factories and infrastructure); human (estimated total earnings of the workforce); financial (monetary assets held overseas); natural (mineral and farming resources). These broader measures show a still wider gap between Africa's economic health and that of Asia.

Africa's resource-dependent economies face mixed prospects, adds the Bank. Although demand for oil is rising, producers in Angola and Nigeria are struggling to meet higher demand and there is little expectation that the sluggish market for African metal producers will pick up in the next three years.

The best news in the report is the strong growth in Côte d'Ivoire, Kenya and Rwanda, based on their more diversified economies, all with robust farm production and substantial public investment programmes. But questions are being asked about the cost of Kenya's borrowing programme, and the value for money of the Nairobi to Mombasa railway.

Depending on how the US trade war with China and Europe plays out, its indirect effects could further suppress demand for Africa's commodities. Alongside trade tensions between the biggest economies, the Bank points to the risk of higher interest rates, a strengthening dollar and a sharp fall in commodity prices as the main external risks facing African economies.

Extreme weather – more droughts and floods – along with ballooning budget deficits and civil conflicts are the main domestic risks for growth according to the Bank. It also warns about the rising costs of servicing debt. Debtors will suffer if the dollar continues to strengthen.

To accusations that they have been slow to flag worsening debt problems in Africa, the Fund and the Bank say they have found flaws in some financial reporting systems. In March 2016, the IMF announced the Mozambique government had contracted over $1 billion of hidden loans and suspended disbursements. Now, the Fund and Bank point to Zambia's unsustainable debt burden as the next financial flashpoint in the region.

President Edgar Lungu's government is caught up in a similar combination of rising debt obligations and grand corruption as well as over-priced state procurement and massive exposure to Chinese project finance debt.

SOUTH AFRICA: Finance Minister Nene claims Zuma sacked him for blocking $100 billion Russian atomic energy plan
What have become known as the 'state capture' hearings in South Africa were told by Finance Minister Nhlanhla Nene on Wednesday (3 October) that President Jacob Zuma had fired him for blocking contracts that would have benefited the Gupta family, including a $100 billion nuclear power deal with Russia. This commission, tasked with investigating allegations of corrupt business influence on the government, was set up in January under Deputy Chief Justice Raymond Zondo but is stepping up its pace now.

President Zuma's sacking of Nene in December 2015 triggered a financial crisis in South Africa as the rand crashed and portfolio investors withdrew. Zuma's chosen replacement for Nene, Des van Rooyen, was seen as weak and inexperienced, and after pressure from a delegation of top officials Zuma sacked Van Rooyen, appointing Pravin Gordhan, who shared Nene's doubts about the Russia deal, in his place.

Nene told the Zondo Commission that Zuma, along with Energy Minister Tina Joemat-Pettersson and Foreign Minister Maite Nkoana-Mashabane, had tried to pressure him to sign a letter of guarantee for the atomic project while they were attending a summit of the BRICS (Brazil, Russia, India, China and South Africa) in July 2015 in Ufa, Russia. Zuma had wanted to give the letter to Russia's President Vladimir Putin in a private meeting to seal the deal. Nene and his team in the treasury agreed that the nuclear plan would be ruinous – or 'fiscally unsustainable' in finance-minister-speak – for the country.

NIGERIA: Party activists are in rebellious mood as the deadline for nominations is due
Ambitious politicians are heading for the final straight in a bid to get on their party's ticket ahead of Sunday's (7 October) deadline for nominations set by the Independent National Electoral Commission.

Although the All Progressives' Congress waved through President Buhari last week as its choice of presidential candidate for the 2019 elections, the party has seen tough battles for many of its other nominations. The biggest upset so far within the party was Lagos State governor Akinwunmi Ambode's loss of the nomination to rival Babajide Sanwo-Olu by 72,901 votes to 970,851.

Party godfather Bola Tinubu had thrown his weight behind Sanwo-Olu. Lagos is the richest state in the federation with the biggest tax base and a key prize for the APC. And Tinubu's influence over its choice of candidate confirms his importance in the region to the party hierarchy. Also in the south-west, there is a tussle over the choice of businessman Dapo Abiodun as APC candidate for the Ogun State governorship. Outgoing governor Ibikunle Amosun, who is a close friend of President Buhari, was backing a rival candidate.

In the opposition People's Democratic Party, the battle for its presidential flagbearer is to be decided at a congress this weekend (6-7 October) with 10 contenders in the frame. The top four in the race are: former Vice-President Atiku Abubakar; Senate President Bukola Saraki; Sokoto State governor Aminu Tambuwal; former Kano State governor and Defence Minister Rabiu Kwankwaso.

Although Atiku has more name recognition, Tambuwal has strong support within the party machine. His close ally is Rivers State governor Nyesom Wike, who insisted that the congress to choose the flagbearer be in Port Harcourt, his state capital.

Much will depend on the bargaining between candidates. Some of the 10 have joined the race to secure nominations for other posts in the political hierarchy. Others are arguing for some closed-door meetings to decide on a single candidate without going through what could be a divisive election.

The timing of the PDP presidential primaries, on the eve of the INEC deadline for nominations, is designed to stop disgruntled and unsuccessful candidates flouncing out of the party to run on another party's ticket. This tight timing will add to the drama over the weekend.


LIBERIA: A scandal within a scandal raises fresh suspicions as President Weah's government announces it has found the 'missing' $104 million in cash

KENYA: Raila Odinga's demand for constitutional reform referendum deepens fight with Vice-President William Ruto while President Uhuru Kenyatta remains non-committal

ZAMBIA: Mining companies complain that higher taxes would wreak havoc with copper export revenues as government juggles debt obligations

ZIMBABWE: Finance Minister Mtuli Ncube, due in London next week, warns that fiscal deficit of $1.8 billion after this year's over-spending threatens the financial system