"South Africa, the region's largest economy, will see sluggish growth of 3.1 percent next year. Although an improvement on 2012, it will not be enough to significantly reduce very high unemployment," reads the EIU forecast dated December 10.
Unlike the IMF, which puts the regional GDP growth at 5.3 percent, the EIU predicts that the growth will be 4.6 percent, but adds that "the longer-term outlook for Sub-Saharan Africa remains positive."
The central banks in the region are also required to ensure runaway depreciation of local currency, witnessed in East Africa in the last quarter of 2011, do not recur. Tight monetary policy and a well-planned quantitative easing will ensure the local currency remains stable.
Global market impact
Martin Masinde, a senior economist at the Budget Office of the Kenya National Assembly, agrees with the EIU on the threats posed by the global economic troubles.
"The U.S. 'fiscal cliff' as well as delayed recovery of the Euro economies will automatically affect the African continent, especially in terms of reduced demand for African exports. These regions (U.S. and Europe) happen to be [two of] Africa's major trading partners as well as the source of foreign direct investment and remittances," Masinde told ChinAfrica.
"A slowdown in these economies is therefore in itself a significant downside risk to the Sub-Saharan Africa economic outlook. Not only are these economies likely to reduce demand for African exports, FDI is likely to reduce as the economies focus on their own recovery," Masinde said.
That means the continent should consider looking to China, the larger Asian market and to an extent South America. Improving trade ties within the continent will also help the continent weather the storm, should Europe and America fail.
Masinde said it is also worth noting that most exports from Africa to the rest of the world are agricultural commodities. With this scenario in place, the level of employment in the agricultural sector which is the mainstay of many African economies will largely be affected. This will ultimately lead to low income levels and an increase of the poverty levels, he said.
The IMF remains positive. The economies of the continent have, since the collapse of financial oligarchs in the West, proved that they can withstand economic mishaps. That, IMF says, is fertile ground for investors.
"Resilience in the region's economies, coupled with the search for yield against a backdrop of low world interest rates, is producing growing interest in the region among investors," the IMF notes in its report.
Will 2013 be the year that investment finds its way into the economies of the continent? The next 12 months will tell.
(Reporting from Kenya)
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