ECONOMIC MADE SIMPLE : Making sense of World Bank’s 2018 Africa’s Pulse

On October 3, 2018, the World Bank launched its annual Africa’s Pulse report in Washington DC. Using tele-conferencing technology, the launching involved discussions in different African countries such as Tanzania, Ghana, Zambia and Nigeria.

In Tanzania the discussion was held at the World Bank office where among others, the author of this article participated with some of his students from Mzumbe University. In what follows, he makes sense of some of the key issues in the report mainly referring to the Tanzanian context.

Economic growth

The report informs that econo-growth in Sub-Saharan Africa (SSA) is estimated to have picked up to 2.7 per cent in 2018 from 2.3 per cent in 2017, barely above population growth. Whereas the SSA growth is said to be at the average mark of 4 per cent, Tanzania has been posting growth figures of about 7 per cent in the recent past. This is above the continent’s average. The next stage should be at seeing growth that is more jobs-creating, poverty-reducing, incomes-generating, inclusive and green growth in favour of both aquatic and terrestrial flora and fauna. This applies not only for Tanzania but also for the rest of Africa and the world at large.

Economic recovery

Economic recovery from the 2014 slowdown in Africa continues but at a slower pace than expected. It is some 0.4 percentage points lower than the April 2018 forecast. This is due to downward growth revisions in the three largest economies in the region which are Nigeria, Angola and South Africa. The bank warns that the road ahead is bumpy. On the supply side, the moderate recovery reflected higher oil prices and better agricultural conditions following droughts. On the demand side, growth was supported by consumer spending amid eased inflation and public investment.

Higher oil prices are not good news to Tanzania which is not an oil producing economy. Increased price of this factor of production can be inflationary. For agriculture to deliver growth in Tanzania, supply-side interventions are needed such as provision of inputs in the needed quantity and quality as well as timely.

External environment

The external environment became less favourable for SSA. Among other things, global trade and industrial production lost momentum. Metals and agricultural prices fell due to concerns about trade tariffs and weakening demand prospects, while oil prices were on an upward trend. Tanzania has to note and monitor its external environment in the context of trade, investments and aid among others. These include the trade war mainly between China and United States of America and its implications to Tanzania; US sanctions on Iran and its implications on oil supply and prices as well as Brexit and its many and far-reaching implications for Tanzania.

National debt

It has been urged that Africa has high debt appetite. This has resulted to massive commercial and concessional borrowing from across the globe.

What has been in focus recently though is Sino-Africa debts. Worries are not only that African countries have borrowed much from China but also the ability to repay and most importantly implications of not being able to pay. There have been talks of possible China takeover of some strategic assets in some African nations. Whether true or not, it is a cause of concern and wakeup call in the broader context of debt management.

Productivity

It is not news that productivity in Africa is generally lower than in other parts of the world. What came out as news in the World Bank report is one of the causes of low labour productivity. This is misallocation of resources by way of putting human capital where it should not have been put in the first place. Misallocation can be solved by placing correct people in correct positions thereby unlocking more potentials and reducing unnecessary wastes.

Domestic resources mobilization

Among the key issues in the debt space is inadequate capacity of domestic resources mobilization (DRM) for African countries and use of the resources once collected. Inadequate DRM necessitate countries to borrow so as to be able to provide necessary public goods and services. When borrowed resources are well utilized mainly in investments it is a good thing.

When borrowing is directed to recurrent expenditure it is bad economics. Bad economics too is borrowing short term to finance long term expenditure. Several fiscal policy and fiscal policy instruments reforms in Tanzania have aimed at increasing DRM. These reforms are very crucial if Tanzania and Africa for that matter is to avoid falling into debt traps now and generations to come.