High oil prices will support growth in Nigeria, Angola as others sub Sahara Africa experience sluggish growth—WB

World Bank in its biannual publication, Regional Economic Updates has said that economic activity in Sub-Saharan Africa is projected to grow at 3.9 per cent and 4.2 per cent in 2023 and 2024, respectively. The report said “a recovery in global demand is expected in 2023 as most of the shocks dragging down the global economy are expected to dissipate. Higher global growth, still favourable commodity prices, easing of austerity measures, and a more accommodative monetary policy amid falling inflation are among the factors contributing to higher growth along the forecast horizon. Furthermore, the lifting of most coronavirus restrictions across many countries, particularly China, might help alleviate global supply chain disruptions. As a result, growth will be supported by an uptick in consumption and investment, as well as faster growth in the industrial and service sectors.

“Sub-Saharan Africa’s recovery is multi-speed, with wide variation across countries. The recovery of the three largest economies in the region—Nigeria, South Africa, and Angola— will continue to be sluggish. High oil prices will support growth in Nigeria and Angola. The recovery in South Africa, while benefiting from persistently high commodity prices, will continue to be held back by structural problems—including electricity shortages, transport and logistic inefficiencies, as well as labor and product market rigidities. Excluding Angola, Nigeria, and South Africa, growth is projected at 4.1 percent in 2022—higher than the growth of the region as a whole. Non-resource-rich countries are projected to be adversely affected by rising commodity prices, dragging down growth in the region. The opposite occurs with resource-rich countries whose growth would be propelled by favourable terms of trade. The war in Ukraine would further improve the economic performance of resource- rich countries (especially their extractive sector) and decelerate the economic activity of non-resource-rich countries as their import bills soar.

“As a result of supply shocks predating the war in Ukraine, emerging signs of stagflation are posing challenges to monetary policy making. Central banks in Sub-Saharan Africa are facing the dilemma of supporting a sluggish economy (at the cost of higher inflation) or combating inflation (at the cost of withdrawing support to economic activity). Monetary authorities in the region have opted for the second option. In response to the monetary policy normalisation in advanced countries, especially the United States, the number of central banks hiking policy rates is on the rise. However, monetary tightening in Africa might not be effective in curbing inflation as it is primarily driven by supply shocks (commodity prices and climatic shocks), and the weak monetary transmission in countries with underdeveloped financial markets and large informal sectors”.