4 minute read

A.2 Output Deviation from Pre-Pandemic Trend

The scarring effects of the 2020 recession have affected the Sub-Saharan Africa region more than any other region, despite elevated commodity prices. growth during the boom period, their performance failed to spill over to the non-resource sector. Consequently, poverty and inequality levels remained unabated.

The Sub-Saharan Africa region has exhibited a disappointing recovery from the 2020 global recession, falling behind the rebound in advanced economies and other EMDEs despite elevated commodity prices (figure A.2). The sluggish performance reflects the scarring effects of the 2020 recession combined with limited policy responses, elevated debts, supply disruptions, and rising inflation. Regional oil exporters, such as Angola, Nigeria, and the Republic of Congo, have not benefited from elevated oil prices partly due to weak investment in the oil sector, which predated the recession. Similarly, mineral exporters, except Botswana and the Democratic Republic of Congo, have fallen short of expectations given the record highs attained in metal prices.

Advertisement

0

Although the short-term dynamics in commodity prices depend on the global demand stemming from recovery in economic activity, supply disruptions, and conflict, the energy transition will play an important role as a driving force behind price movements over the medium to long term. The Sub-Saharan Africa region missed the opportunity of a prolonged surge in commodity prices driven by high demand in EMDEs, particularly China. The region performed exceptionally well during the boom phase, but most of the gains were squandered when prices collapsed in 2014 and since then, the region has struggled to regain its pre-collapse growth path. The post-boom period was characterized by debt vulnerabilities, rising poverty, and worsening inequality in many resource-rich countries. Unsurprisingly, failure to harness resource wealth for economic development is not unique to resource-rich countries in Sub-Saharan Africa, as resource-rich developing countries with weak political and economic institutions face similar challenges.

The recent price dynamics offer yet another opportunity, especially for resource-rich mineral exporting countries, due to the marked increase in demand for these commodities for use in renewable energy infrastructure (say, solar panels or wind turbines), but also the manufacturing of products that are associated with green industries or energy transition (say, electric vehicle

FIGURE A.2: Output Deviation from Pre-Pandemic Trend 2 Percent -2 -4 -6 -8 2019 2020 2021e 2022f 2023f World Advanced economies EMDEs SSA Source: World Bank staff projections. Note: EMDEs = emerging markets and developing economies; SSA = Sub-Saharan Africa.

batteries or charging stations). However, the increased fuel prices pose challenges for resourcerich countries that depend on fossil fuel energy for their exports, as consumption of fossil fuels is set to decline, setting the stage for policies that foster structural change. Agricultural exporting countries will be exposed to a downward trend in their commodity prices—thus requiring structural reforms (Baffes and Kabundi 2021). Past boom episodes have mostly ended with prolonged recessions coupled with sovereign defaults resulting in financial crises. Will history repeat itself this time?

Against this backdrop, this annex answers the following questions:

· How did the Sub-Saharan Africa region perform during the 2004-14 commodity boom episode?

· What are the opportunities to ensure inclusive growth this time?

The Missed Opportunity of the Commodity Boom Episode Commodity prices rose considerably from 2000 to 2014, on the back of strong demand from urbanization and industrialization in China, making the country the primary importer of commodities, specifically metals. China’s demand for metals grew from 10 percent in the 1990s to 50 percent of world demand for metals in 2015. From 2000 to 2011, energy prices increased by 134 percent, while metal and agricultural prices rose by 113 and 78 percent, respectively. Surges in commodity prices generated unprecedented growth in the region of 5.1 percent over 2000–14, compared with 2.2 percent over 2015–18. Resource-rich countries saw a sharp drop in growth from 7 percent (oil rich) and 3.6 percent (metal and mineral rich) to 1.3 and 1.8 percent, respectively. In contrast, non-resource-rich countries experienced an uptick in growth from 4.9 percent in 2000–14 to 5.2 percent in 2015–18.

Using a sample of 48 countries, Cust and Zeufack (2022) find evidence of increasing commodity dependence among resource-rich over 2004–14. The number of resource-rich countries rose from 16 to 26, including new countries and prospective resource-rich countries based on discoveries. During the boom decade, the cumulative revenues derived from primary subsoil resources exceeded $50 billion for each of the three largest economies in the region (South Africa, Nigeria and Angola). Figure A.3 shows the extent and diversity of the commodities driving these revenues. As a proportion of GDP, primary subsoil resource revenues accounted for around 6.8, 2.8, and 9 percent in South Africa, Nigeria, and Angola, respectively, during this same period. These revenues created unparalleled levels of fiscal space for many governments, while also reflecting the scale of the boom in the resource sector. Export diversification is a form of protection against depletion of the resource base. Historical evidence suggests that some countries in Latin America and Southeast Asia have benefited from diversification (Ross 2017). This has become more urgent for oil-rich economies as it may provide insurance against a future global shift from fossil fuel consumption, driven by alternative energy technologies and taxation of carbon emissions (Cust, Manley, and Cecchinato 2017).

This article is from: