INTERNATIONAL ECONOMIC OUTLOOK
Growth rebound in Q2 of 2015
At the dawn of 2015, expectations were rising that perhaps the depression would subside, especially in the euro area and that finally, after seven years of economic and financial turmoil, the world would be back on a steady growth path. No sooner had the end-of-year wish been made than the bad news started to flow in from countries of the Eurozone. Five years after Greece had kickstarted the euro crisis (by admitting that its budget deficit was twice as big as had previously been reported) there are still no signs of sustained recovery. The economic landscape has deteriorated further with Germany set to face stiff challenges to stay out of recession. What is infinitely worse is the spectre of deflation looming large on the euro area.
Elsewhere, the situation in the United States and the UK appears less gloomy. Annual growth in the UK is expected to be close to 3% over the 2015-2016 period and the unemployment rate is projected to be 5.5% in 2016. This is in stark contrast with Continental Europe where the unemployment rate is not expected to fall below double digits, where it had been since 2012, until 2016.
In its World Economic Outlook report published in October 2014, the IMF posits that global growth is projected to “rebound to an annual rate of about 3.7% in the second half of 2014 and into 2015” as depicted below. The United States is expected to experience the strongest rebound in growth. These forecasts are slightly weaker as compared with the IMF’s July 2014 issue.
Figure 10: GDP Growth Forecasts (Annualised quarterly % change)
“According to the IMF, global growth is projected to rebound to an annual rate of about 3.7 % in the second half of 2014 and into 2015.”
Source: World Economic Outlook October 2014, IMF
Global investment trends
2012 was the year when, for the first time in history, developing countries outperformed their developed counterparts in terms of FDI inflows. The trend persisted in 2013, with the former group maintaining its lead further. Indeed, the World Investment Report (WIR) 2014 reveals that developing economies managed to attract USD 778bn worth of FDI in 2013, which represents 54% of global flows. Developed economies experienced a slight growth of 9% to reach USD 566bn. The remaining USD 108bn went to so-called transition economies.
The WIR 2014 calls for “cautious optimism” as global FDI returned to a sustained growth path, with inflows rising 9% in 2013 to reach USD 1.45bn. Forecasts made by UNCTAD reveals FDI flows could reach USD 1.6tn in 2014, USD 1.7tn in 2015 and USD 1.8tn in 2016, with relatively larger increases in developed countries.
“2012 was the year when, for the first time in history, developing countries outperformed their developed counterparts in terms of FDI inflows. The trend persisted in 2013...”
Figure 11: FDI flows by regions, 2007-2013
Source: World Investment Report 2014, UNCTAD
Africa attracted USD 57bn worth of FDI in 2013, up 4% as compared with 2012. The main drivers were customer-oriented sectors which attracted international and regional marketseeking flows amidst expectations of sustained growth of an emerging middle class. These sectors include ICT, Tourism & Hospitality, Finance, Retail and Food industries. Infrastructure investments also remained a key driver of FDI flows, especially intraregional investments led by South African, Kenyan and Nigerian corporations.
Figure 12: Evolution of the sectoral distribution of announced greenfield FDI projects in Africa, 2004–2013 (% of total value): Notable shift from Manufacturing to Services
Source: World Investment Report(WIR) 2014, UNCTAD
The WIR 2014 reports that it was the Eastern and Southern African sub-regions which contributed significantly to the overall increase in FDI flows. FDI to Southern Africa witnessed nearly 100% growth to reach USD 13bn, largely accounted for by record-high flows to South Africa and Mozambique.
FDI increased by 15% to USD 6.2bn mainly due to rising flows to Ethiopia and Kenya. The latter is reported to be slowly becoming a favoured business hub, not only for oil and gas exploration but also for industries such as manufacturing and transport and logistics. Both North and Central & West Africa regions recorded negative growth rate of FDI.
Regional integration in Africa
African leaders have also shown determination to increase the pace of regional integration. This was first agreed to in the 1991 Abuja Treaty, which had the ambitious goal of setting up an African Economic Community through a gradual process.
Mauritius has participated in this phased process since 2011, when negotiations on the COMESA-EAC-SADC Free Trade Area (FTA) were launched in 2011. Twenty-six African countries are involved in this tripartite FTA with the objective of achieving a common market as well as a single investment area. Whilst the Bank commends such efforts towards regional integration, it remains realistic in its expectations given that fully achieving these ambitious goals could take decades, as evidenced by the laborious experience of Europe in this field.
Outlook for Sub-Saharan Africa
In its Regional Economic Outlook released in October 2014, the IMF reports that Sub-Saharan Africa (SSA) is “expected to continue being the second fastest growing region in the world, just behind emerging and developing Asia. Whether this generates inclusive growth, however, remains a matter of concern, as poverty rates and inequality are still high across the region.” GDP growth is forecast to be about 5% in 2014 and 5.75% in 2015 assuming that the Ebola virus is contained and that there is no further exacerbation to business confidence and labour market as well as infrastructure bottlenecks in selected economies such as South Africa and Ghana.
In contrast, economic activity in South Africa is projected to remain subdued, perhaps ending 2014 with a growth rate of 1.4%. If labour relations improve enough to allow inventory rebuilding, the IMF expects growth in 2015 to rebound to 2.3%, which would still be among the lowest in SSA. It is believed that infrastructure constraints could only be expected to be lifted in a gradual manner as from 2016 when new power plants are projected to start operations.
“Sub-Saharan Africa is expected to continue being the second fastest growing region in the world, just behind emerging and developing Asia.”