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Economic Paradox Why further slump in African economies will rather increase jobs

As some businesses on the continent close, hit by tough times, others will open as people try to make ends meet

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Merkato market in Addis Ababa, Ethiopia. There's a lot of work in Africa - even when economies are hurting. (Photo/ Flickr/ SarahTz). play

Merkato market in Addis Ababa, Ethiopia. There's a lot of work in Africa - even when economies are hurting. (Photo/ Flickr/ SarahTz).

The World Bank cut its economic growth estimate for sub-Saharan Africa to the lowest since 2009 as falling commodity prices and tighter global financial conditions dampen prospects.

The Washington-based lender lowered its growth forecast for this year to 3.7%, 50 basis points down from its projection in June, and compared with 4.6% expansion recorded in 2014.  

“The dramatic, ongoing drop in commodity prices has put pressure on rising fiscal deficits, adding to the challenge in countries with depleted policy buffers,” the bank’s acting Chief Economist Punam Chuhan-Pole said in an e-mailed statement on Monday.

Oil, minerals, metals and agricultural commodities account for nearly three-quarters of the region’s exports, the World Bank said in its bi-annual Africa’s Pulse report.

Prices of natural gas, iron ore and coffee had fallen by more than 25% since June 2014, it said.  

In countries such as South Africa, Zambia and Ghana, domestic factors including power shortages, were further hindering output, it said.

African currencies have also been hammered this year, dropping in value by up to 25% in countries like Zambia and Angola.

No doubt, the negative outlook is bound to adversely affect businesses – commodities giant Glencore said on Sept. 7 it plans to suspend operations in Zambia and at Katanga Mining Ltd. in neighbouring Democratic Republic of Congo for 18 months; the company has been in talks with the government and labor unions on plans to cut about 3,800 of the 20,000 jobs in Zambia.

But in the African context where 80% of the jobs are outside the formal sector, a tough economy could result in just the opposite – the opening of more, not fewer, businesses. They will not be hughstreet businesses, but businesses all the same.

As inflation eats into purchasing power, the instinctive reaction is either to cut back on expenses, or attempt to boost income with a second or third side job – or both.

In Africa, there are fewer barriers to entry and less regulation in the informal space than in many developed economies. It means that as some businesses on the continent close, hit by tough times, others that however might pay less, will open as people try to make ends meet.

A few months ago, for example, Uganda was named as the world’s most entrepreneurial country according to an analysis by the Global Entrepreneurship Monitor, where 28% of the workforce have started their own businesses in recent years.Cameroon was 4th, Angola 6th, and Botswana 8th.

These countries aren’t in the top entrepreneurial slots because they are on the verge of the next big tech boom.

It’s much more basic – job creation isn’t keeping up with the growth of the labour force, so for many, striking out on their own might be the only path not just to potential success, but to survival.

Still, the World Bank estimates that growth across the region may accelerate to 4.4% in 2016 and 4.8% in the following year, according to the statement.

Ethiopia, Ivory Coast, Mozambique, Rwanda and Tanzania may also sustain annual growth rates of about 7% in the short term, supported by investments in energy and transport and consumer spending.  

Sub-Saharan African nations had increased their fiscal deficits since the start of the global financial crisis as wages rose and revenues fell, the World Bank said.  

“To withstand new shocks, governments in the region should improve the efficiency of public expenditures, such as prioritising key investments, and strengthen tax administration to create fiscal space in their budgets,” Chuhan-Pole said.

Source: Mail & Guardian Africa

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