The Continent Must Find a Way To Ensure Economic Diversity, Expert Says
SMITH BRAIN TRUST – Growth across sub-Saharan Africa is expected to outpace global growth this year and next, and the reasons why accentuate the importance of economic diversification, says Maryland Smith’s Lemma Senbet.
“Whether it’s oil in Nigeria and Angola, coffee in Uganda or copper in Zambia, single-commodity domination of an economy can end up shackling growth,” Senbet said recently in an interview with Lagos-based Business A.M., whose news reports focus on financial markets and business in Nigeria, West Africa and Africa.
Senbet, the William E. Mayer Chair Professor of Finance at the University of Maryland’s Robert H. Smith School of Business, was executive director and CEO of the African Economic Research Consortium (AERC) from 2013 until last year. AERC is the oldest and largest economic research and training network serving the continent of Africa.
Senbet says economies need diversity, particularly when faced with headwinds like the ones streaming across the world now.
Economies, that rely on the export of one or two commodities, or other primary products have historically found themselves in economic stagnation whenever there is a sustained lull in commodity prices. It’s a situation that has played out multiple times in the so-called mono-product economies of Nigeria, Angola and Zambia.
Overdependence on a particular commodity, he says, also determines, to a significant degree, how vulnerable countries are to economic shocks, currency fluctuations and changes in commodity prices. Senbet teaches finance at Maryland Smith and was the founding director of its Center for Financial Policy before he moved to Africa on a five-year mission to head AERC.
According to the International Monetary Fund’s latest outlook, economic expansion in sub-Saharan Africa is expected to be 3.4% in 2019, and 3.6% in 2020. For both years, that’s a 0.1 percentage point lower than forecast in the IMF’s April World Economic Outlook, dragged lower as global growth slows amid a U.S.-China trade war, Brexit-related uncertainty and rising geopolitical tensions.
“Global growth remains subdued,” the IMF says in last month’s World Economic Outlook. In the three months since the IMF’s previous outlook, the United States had further increased tariffs on Chinese imports and China had retaliated. Global technology supply chains had been threatened by the prospect of U.S. sanctions, Brexit-related uncertainty persisted, and rising geopolitical tensions agitated energy prices.
It all had an impact on global economies. In sub-Saharan Africa, robust growth in non-resource-intensive countries is offsetting some of the drag from the region’s largest economies. Higher, but volatile, oil prices, had helped bolster Africa’s largest economy, Nigeria, and some other export-driven economies. Growth in South Africa is expected to be modest, after a “very weak first quarter,” partly the result of strike activity, energy supply issues in mining and weak agricultural production.
Nearly 40 African countries have either discovered or are currently exploiting oil and gas resources, Senbet notes. Still, the socio-economic impacts remain disproportionately low and have not translated into economic diversity. In reality, Africa needs to diversify and significantly reduce its focus from being exclusively on resources in some cases, single commodities, he says.
“I think economic diversity is one of the areas that Africa has been weak [on] for a long time. We tend to grow fragile, single commodity-driven economies, which are non-inclusive. We should diversify,” he says. He says the new free trade area agreement (AfCFTA) offers great opportunity for promotion of intra-Africa trade, export diversification, regional value chains and economic diversity. There have been numerous regional agreements in the past with very mixed, and often disappointing, outcomes. However, this time AfCFTA looks different, he says.
He sees a renewed optimism and inter-regional political commitment. AfCFTA is the largest free trade area agreement in the world, and its scope reaches beyond the traditional trade in goods, to encompass services and knowledge transfers. It marks a massive opportunity, he says, to further integrate Africa into the global economy.
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