Infrastructure deficit, sliding oil prices may cut Nigeria’s growth projection

Growth is expected to decelerate in Sub-Saharan Africa to 3.7 per cent in 2015, the lowest since 2009, due to declining crude prices and infrastructure (electricity supply and transport) constraints affecting Nigeria and South Africa.

The World Bank said in a report titled: Africa Pulse released on Monday, that slowdown in growth forecast is related to crude oil prices, refining, one of the key activities in the sector, which recorded a sharp decline.

It disclosed that Nigeria’s huge infrastructure and electricity deficits are impairing the ability of factories to operate.

The World Bank added that the on-going power and infrastructure bottlenecks in South Africa, compounded by difficult labour relations, weighed heavily on growth.

It added that although a drought in agriculture also contributed to the fall in output in the second quarter.

It noted that electricity shortages emerged as key structural impediments to growth in several countries in 2015, including Botswana, Namibia, and Zambia, where a power crisis severely hampered copper production. Availability of electricity was also a constraint in Ghana and Senegal.

The report added that the fiscal positions of oil exporters such as Angola, Nigeria, and Republic of Congo were particularly affected. “In Nigeria, distributable revenues to the federal and state budgets fell by about 40 percent between January and June 2015, triggering a severe tightening of public spending. Salary arrears emerged in several states, and state and federal governments implemented sharp cuts in capital expenditures”, it added.

The report stated that anticipated 2015 growth in GDP marks the lowest growth rate in Sub-Saharan Africa since 2009, and falls below the robust annual 6.5 percent growth in GDP that the region sustained in 2003-2008, the report notes.

“The good news is that domestic demand generated by consumption, investment, and government spending will nudge economic growth upwards to 4.4 percent in 2016, and to 4.8 percent in 2017, said Punam Chuhan-Pole, Acting Chief Economist, World Bank Africa Region and Author of Africa’s Pulse.

The analysis points out that some countries in the region are bucking the weakening regional trend and continuing to post robust growth.

It believed that economic activity will pick up in 2016 to 2017 as commodity prices make a slow recovery, fiscal consolidation eases, and governments take steps to alleviate power supply bottlenecks.

The report recommended that governments should begin structural reforms to address domestic bottlenecks and support renewed economic growth.

It stated: “Governments can boost revenues through tax reform and improved tax compliance. In addition, governments can improve the efficiency of public expenditures to create fiscal space in their country’s budget in order to respond to external and internal shocks.

Africa’s Pulse describes the combination of external headwinds and domestic difficulties that are impacting economic activity in Sub-Saharan Africa.

The report stated that external headwinds and domestic difficulties are weighing on growth in Sub-Saharan Africa, although some countries in the region are continuing to post strong growth.

It added that the region is entering a period of tightening borrowing conditions amid growing domestic and external vulnerabilities.
The Africa’s Pulse stated: “Fiscal deficits across the region are now larger than they were at the onset of the global financial crisis, and government debt has continued to rise in many countries.

“Current account deficits, combined with the strong appreciation of the U.S. dollar, kept currencies across the region under pressure throughout the year.

“A protracted Chinese slowdown, lower oil prices, and a sharper and faster normalization of unconventional monetary policies in the United States remain key external risks”.

It adde that governments should embark on structural reforms, such as building resiliency in the power sector and tax reform to boost revenue that can support economic growth and reduce poverty.