Photo by: Duane Daws
African economies will grow on average by only 2% in 2016 and South Africa by just 0.3%, the United Nations Conference on Trade and Development’s (Unctad’s) latest Trade and Development Report states. North Africa will expand by 1.7% and sub-Saharan Africa by 2.8%, excluding South Africa.
The Geneva-based body argues that economic slowdown in the advanced economies is the biggest drag on global growth and that developing countries are caught in the downdraft. Unctad expects the US and the Eurozone to grow by 1.6%, while Japan is expected to stagnate at just 0.7%. China is forecast to grow by 6.7%.
“The loss of economic momentum in the advanced economies is having knock-on effects on developing countries, which will grow on average less than 4% this year, some 2.5 percentage points below the precrisis figure,” Unctad stated.
Global growth is expected to fall below the 2.5% registered in 2014 and 2015.
In Africa, commodity producers are particularly vulnerable as the commodity cycle experiences a second year of a sharp downturn – the commodity price index is 5% below its 2003-2008 average.
Unctad argues that turning more towards the regional markets may offer important benefits, particularly in light of the fact that intra-African exports consist mostly of manufactures and processed commodities. “It thus has the potential to support industrialisation and diversification.”
In South Africa, Unctad says an imported intermediates substitution industrialisation strategy could also be used to cultivate domestic capabilities.
“This may require transforming export processing zones into more integrated industrial development parks with much stronger backward and forward linkages with the rest of the economy.”
The emphasis on import substitution has been made as global trade growth is forecast to slow to just 1.5% – a full percentage point lower than world output.
Unctad says the lack of global demand and stagnant real wages are the main problems behind the slowdown in international trade. “But if policymakers fail to mitigate the negative impacts of unchecked global market forces, then a turn to protectionism could trigger a vicious downward cycle affecting everyone.”
Advanced economies could help kick-start sustainable global growth by combining proactive fiscal policy, including on infrastructure spending, with supportive monetary policy and redistributive measures, the report asserts.
Developing countries, meanwhile, should build domestic demand, use regulation to protect themselves from the risks of financialisation in their domestic contexts and protect their policy and fiscal space to manage any unforeseen shocks.
The global economy needs a policy overhaul to move beyond a sixth straight year of sluggish growth, Unctad argues, adding that getting the world economy back on track requires that global leaders use bolder macroeconomic policies, strengthened regulation of finance and active industrial policies.