World Bank: Sub-Saharan Africa growth tied to Euro zone crisis

Ahmadou Moustapha Ndiaye, the Uganda WB country manager.

The World Bank’s forecast of 5% growth for Sub-Saharan Africa in 2012 risks being affected by the Euro zone, a senior bank official has said.

WB projections place the developing world, with Sub-Sahara Africa being the main player, at the centre of recovery from the world economic recession.

Last year, 2011, Sub-Saharan Africa had one of the world’s fastest growth rates at 4.7% average, almost back to the region’s performance before the economic crisis time.

Next year the growth is still projected to increase to 5.3%.

This forecast is placed at the risk of persistent risk of financial recession for developed countries especially after Cyprus asked for help from EU which “brings a lot of uncertainty in the air since developing countries are not isolated from the world” Ahmadou Moustapha Ndiaye, the Uganda WB country manager said.

He added that the Euro zone crisis will constrain growth in the developing countries as Euro governments will need to increase taxes and level on public investment to streamline their budget. This will affect the trade infrastructure and reduce foreign aid.

Ndiaye who was speaking to journalists at WB offices in Kampala said the effect will be felt through low remittance by African immigrants back home due to contracting job market and a reduced number of tourists visiting Africa as high income earners will be faced with new taxes.

But the forecast is set to hold steady if the prices of African commodities in the world market grow and investment flows into in new resources and infrastructure like oil drilling, refineries, roads, and ICT.  

Ndiaye points out that Africa can get finance from bilateral development partners to borrow and invest in infrastructure which will set to increase sub-regional trade which reduces their dependency on Euro zone countries and should place more importance on regional integration like EAC.

According to government’s record Kenya is projecting her growth at 5.0% in the 2012/13 financial year on the back of a SH1.459 trillion budget which highly relies on infrastructure development to spur growth.

“The energy, infrastructure and ICT sector leads on government’s expenditure at 24% allocation on account of on-going road and energy projects as the sector is able to sustain development” a PricewaterhouseCoopers, PwC, analysis points out.

But PwC says this can be challenged by a road maintenance backlog, lack of adequate local construction capacity and delayed uptake of donor funds.

Equally, the country’s budget which relies on 15.4% foreign funding (Sh225.5 billion) from external grants and loan for revenues will be constrained by the Euro zone crisis.

This reliance of sub-Sahara to external grants is what Ndiaye says can be rectified by regional integration and trade.

“Sub regional trade away from Euro-zone can be increased with EAC investing in infrastructure especially in oil exploration and speed up convergence in fiscal policies and the monitory union” he says.

©Manuel Odeny, 29 June 2012 from Reuters Training in Kampala, Uganda