UNECA 2019 partial ECONOMIC REPORT ON AFRICA
Africa’s real GDP growth is projected to increase marginally, from 3.2 per cent in 2018 to 3.4 per cent in 2019, before rising to 3.7 per cent in 2020. These forecasts are revised upwards from last year’s to reflect rising private consumption, rising and sustained public investment, higher commodity prices, ongoing oil exploration and production and expected favourable weather. All subregions are projected to post real GDP growth in both 2019 and 2020.
GDP growth is projected to be highest in East Africa rising from 6.2 per cent in 2018 to 6.4 per cent in 2019 before reaching 6.5 per cent in 2020. Growth is likely to be boosted by increased private investment; growth in industry and services (especially in Ethiopia, Kenya, Rwanda and Tanzania); higher public investments in infrastructure; stronger private consumption; oil and gas explorations; more inflows of foreign direct investment; and larger diaspora remittances.
West Africa’s growth is projected to be moderate in 2019, at 3.4 per cent, before rising to 3.8 per cent in 2020, lifted by good economic performance in Ghana and Nigeria. In general, growth in the subregion is expected to continue to benefit from fairly high oil prices and increases in oil production, expanding services sectors across the subregion, rising private consumption and public investment in infrastructure.
Growth in Central Africa is projected to pick up, from 2.3 per cent in 2018 to 2.7 per cent in 2019 and accelerating to 3.8 per cent in 2020, driven by a recovery in commodity prices, both new and increased production of oil and gas and strong performance in agribusiness, mining (in Central African Republic), manufacturing and services.
Growth in North Africa is projected to decline, from 3.7 per cent in 2018 to 3.4 per cent in 2019 before moderating to 3.5 per cent in 2020, driven by higher oil prices, gas production and continued investments in non-oil sectors (manufacturing and services).
Southern Africa is projected to remain the slowest growing subregion, with a growth rate of 2.1 per cent in 2019, up from 1.2 per cent in 2018. Growth will be driven by increasing agricultural production and rising global commodity prices.
However, most African economies face downside risks to growth from the tightening of monetary policy and new protectionist policies in advanced economies; weather-related shocks, especially in agriculture-dependent economies; threats of terrorism and conflict; political instability; and high chance of debt distress in some countries.
FOREIGN INVESTMENT FLOWS INTO AFRICA CONTINUE TO DECLINE
Mirroring global trends, foreign direct investment (FDI) inflows to Africa fell by 21.5 per cent in 2017, to $41.8 billion, as global flows declined by 23.4 per cent to $1.43 trillion.6 FDI flows into developing countries stagnated in 2017, but flows into Africa are projected to strengthen by 20 per cent in 2018, to $50 billion, due mostly to a recovery in commodity prices, investments in infrastructure projects and accelerating regional integration efforts (UNCTAD, 2018a).
North Africa and West Africa were the most sought after in 2017, registering $13.3 billion and $11.3 billion in FDI inflows, respectively, mainly targeting the technology, automotive, textiles and mining sectors.
FDI outflows from Africa to the rest of the world rose by 8 per cent, to $12.1 billion in 2016, with Mirroring global trends, foreign direct investment (FDI) inflows to Africa fell by 21.5 per cent in 2017, to $41.8 billion. South Africa ($7.4 billion) leading the investment outflows, followed by Nigeria ($1.3 billion) and Morocco ($0.96 billion). The United States remains the top country in terms of investing in Africa, although Chinese companies more than doubled their investments on the continent over 2011–2016, increasing by $24 billion (figu’re 1:13)
ESTABLISHMENT OF THE AFRICAN CONTINENTAL FREE TRADE AREA AND ITS IMPACT ON TARIFF REVENUE
The characteristics of Africa’s trade and the current uncertain global context make deepening regional integration an imperative for Africa. The AfCFTA has the potential to contribute to growth and structural transformation in Africa. In particular, all countries would benefit from trade expansion following removal of tariff and non-tariff barriers within Africa, and the least developed countries would gain more through expansion of industrial exports (ECA, 2018).
The AfCFTA is expected to have a moderate and gradual effect on revenue from tariffs on intra- African trade for several reasons (ECA, 2018). As of March 2019, the particular products to be excluded from liberalization under the AfCFTA have yet to be determined by each country. Nevertheless, ECA calculations, using a number of informed scenarios to approximate the implications of the AfCFTA for tariff revenue, forecast that reducing and removing tariffs on African trade flows would result in a 6.5–9.9 percent decrease in tariff revenue for Africa in the long run.
While tax collected on African trade flows will fall, the overall effect of the AfCFTA on total government revenue may be more balanced, especially over the medium term, because import duties are only a small component of government revenue, accounting on average for only 15 per cent of total tax revenue in Africa (ATAF, 2017). This means that reductions to tariff revenue, which are expected to be limited, will affect only a small share of tax generation for most countries. While the AfCFTA will reduce tariff revenue, it is expected to stimulate GDP growth by as much as 1–6 per cent, which would increase the broader tax base and boost revenue collection from other sources (UNCTAD, 2017). Moreover, the sectors that are expected to gain from the AfCFTA, such as manufacturing and processed agriculture (and to some extent services), are those that tend to have a larger multiplier effect, contributing to sustainable growth and fiscal sustainability.
The overall effect of the AfCFTA is estimated by ECA to be a slight increase in the economic welfare of Africa due largely to the expansion of intra-African exports.