The World Bank’s Global Economic Prospect Report for 2016
Over the last two decades, Ethiopia’s rapid economic growth and associated developments have made real progress towards the ambitious aims for the country’s renaissance. They have encouraged a real belief that this can be achieved and a middle-income economy reached within the next decade or so, offering real prospects of winning the war on poverty. With international and regional organizations regularly beginning to highlight the turnaround in Ethiopia’s economic performance, even the normally reluctant western media has started to address the positive reports about the country. Indeed, the rising number of positive reports and the number of major projects now visible on the ground have encouraged both the media and international organizations and groups to examine Ethiopia’s progress more closely.
The latest World Bank Group’s report on the global economic prospects is a case in point. The Global Economic Prospect Report for 2016 was released on Wednesday last week (January 6). This flagship report of the World Bank is a study offering a detailed outlook for the global economy and for each of the world’s emerging market regions for the next year. The Report analyzes a number of themes of particular importance to policy makers in emerging markets as well as in other areas. These themes include consideration of how the slowdown in major emerging markets affects the rest of the world and covers the different regions and their neighbors. The Report also examines capital controls and other strategies that countries with different exchange rate regimes can use to shield themselves more effectively from financial turmoil.
Overall, the Bank’s Report suggests that after global growth disappointed again last year, slowing to 2.4%, recovery is expected to be slower than previously thought. It projects growth to reach 2.9% this year as ‘a modest recovery in advanced economies continues and activity stabilizes among major commodity exporters.” It also notes that forecasts are subject to substantial downside risks and warns that a more protracted slowdown across the larger emerging markets could affect other developing economies and hold back recovery. It said “a broad-based slowdown across developing countries could pose a threat to hard-won gains in raising people out of poverty”, warning that “Simultaneous weakness in most major emerging markets is a concern for achieving the goals of poverty reduction and shared prosperity because those countries have been powerful contributors to global growth for the past decade”. It notes that a lack of growth in developing countries “poses a threat to hard-won gains in raising people out of poverty”. Therefore, World Bank President, Jim Yong Kim, said with more than 40 percent of the world’s poor living in the developing countries where growth slowed in 2015, they “should focus on building resilience to a weaker economic environment and shielding the most vulnerable.” He added “the benefits from reforms to governance and business conditions are potentially large and could help offset the effects of slow growth in larger economies.”
While growth in low-income countries generally remained robust in 2015, though slowing to 5.1% from 6.1% in 2014, as far as sub-Saharan Africa was concerned, the World Bank Group expected this to grow by 4.2% in 2016, up from 3.4% in 2015. This projection, however, is based on the assumption that electricity constraints will ease this year and commodity prices will stabilize. Many of these countries have limited exposure to the commodities that are experiencing the most severe decline in prices. Meanwhile, large-scale investment projects in energy and transport are ongoing, consumer spending remains robust, boosted by lower fuel prices, and despite low minerals prices, and mining output is set to rise in several countries. In fact, the prospects for economic growth were seen as particularly strong in several of the largest low-income countries with public investment, rising farm output and mining investments providing the basis for growth.
Public investment, consumer spending, and mining production will help Côte d'Ivoire, Ethiopia, Mozambique, Rwanda, and Tanzania sustain rapid growth in 2016 and beyond, with the Democratic Republic of Congo (8.6%), Cote d’Ivoire (8.3%) and Ethiopia (10.2%) having the highest increases. The Report suggests that these three countries and Niger will also have growth rates of 9% or over in 2017. With regard to Ethiopia, the 2016 Report noted that the country had registered substantive results for some years and anticipated it would continue to do so in the coming years. Indeed, according to the World Bank, Ethiopia's economic growth of 10.2 percent in 2015 was produced by good harvests, rising public investment, and booming manufacturing and construction. The Bank forecast that public investment, consumer spending, and mining production would help Ethiopia to sustain this growth. It also noted that in oil-importing countries, including Ethiopia and Rwanda, low commodity prices supported economic growth in 2015. In addition the Report said that the economies of Ethiopia, Mozambique and Tanzania were all getting substantial Foreign Direct Investment (FDI). It suggested that large-scale investment projects in mining, energy and transport, consumer spending, and public investment would help to further strengthen economic growth in Ethiopia, Mozambique and Rwanda specifically. Improvements in the power supply in Ethiopia and Rwanda were singled out as registering strong economic support.
The report commended Ethiopia, Rwanda and Tanzania’s effort for utilizing effectively large scale infrastructure investment, mineral development and consumer spending and demonstrated the potential these had to support their economies. These developments should be strengthened. The World Bank Report recommended that in a number of low-income, non-oil, commodity exporting countries like Ethiopia, governments should continue to invest heavily in energy and transport infrastructure in a bid to improve the operational environment for growth, drawing in part on the proceeds from bond issuance, public-private partnerships, donor aid and, in some cases, financing from Chinese entities. While it accepts debt levels may rise, the World Bank believes they will remain manageable in most low–income countries as growth has been, and will continue to be, robust.