If you live by commodities, you will die by commodities. In Africa, this aphorism is becoming true in a devastating fashion. The continent’s economies rode the global demand for commodities in the early part of this century to create some of the fastest economic growth in the world. In fact, in the first 10 years of this century, six of the 10 fastest growing economies came from Africa.
But those good times have come to an end. Demand for commodities has slowed down considerably, representing a “formidable shock for many of the sub-Saharan African countries that are still substantial commodity exporters,” a recent report (pdf) by the IMF says. Some countries are seeing the prices of their main commodities plummet by 40% to 60%, leading the IMF to revise its growth projection for the region to 3.75% this year and 4.25% percent in 2016, from 5% in 2014.
The IMF points out that the region’s growth still beats that of many emerging and developing parts of the world. Yet, the momentum seen in recent years in the region seems to have hit a roadblock. China’s economic slowdown is a major factor. At one point one of the biggest consumers of Africa’s commodities, the country’s decision to re-orient away from manufacturing and construction to a services and consumption economy will impact Africa significantly. Trade between the continent and China reached $220 billion last year.
Oil producing nations are experiencing the worst of this decline. Angola, which between 2004 and 2008, boasted double-digit average annual growth, will now see growth slow to 3.5% in 2015. Nigeria, another oil exporter and Africa’s largest economy, will see its growth come down from 6.3% in 2014 to 4% this year, IMF’s data shows. The global plummeting of oil prices is being blamed as another factor contributing to the economic deceleration in the region.
All these shocks are putting enormous pressure on the region’s currencies. The Angolan kwanza has lost almost 30% of its value against the US dollar this year alone. Nigeria’s naira has depreciated by 25%. Things have gotten so bad for the Zambian kwacha that the president asked his people to pray for it.
It’s not all doom and gloom. Some low-income countries, such as Cote d’Ivoire, Ethiopia, and Tanzania are expected to withstand the global economic volatility, with projections of 6.2% growth this year and close to 7% in 2015, according to IMF data. The strong numbers are fueled by continued infrastructure investment, specifically in energy and transport. Plus, private consumption is projected to remain strong, and large foreign direct investment (FDI) will continue to flow into these countries.
For the rest of the continent, perhaps this is a wake-up call to heed the advice of those who say Africa needs to diversify its economies. Otherwise, this slump will become a permanent reality.