news analysis advocacy
No Easy Victories: African Liberation
and American Activists over a Half Century
New book discount offer!
tips on searching
   the web allafrica.com

 

 

Visit the AfricaFocus
Country Pages

Algeria
Angola
Benin
Botswana
Burkina Faso
Burundi
Cameroon
Cape Verde
Central Afr. Rep.
Chad
Comoros
Congo (Brazzaville)
Congo (Kinshasa)
Côte d'Ivoire
Djibouti
Egypt
Equatorial Guinea
Eritrea
Ethiopia
Gabon
Gambia
Ghana
Guinea
Guinea-Bissau
Kenya
Lesotho
Liberia
Libya
Madagascar
Malawi
Mali
Mauritania
Mauritius
Morocco
Mozambique
Namibia
Niger
Nigeria
Rwanda
São Tomé
Senegal
Seychelles
Sierra Leone
Somalia
South Africa
South Sudan
Sudan
Swaziland
Tanzania
Togo
Tunisia
Uganda
Western Sahara
Zambia
Zimbabwe

Get AfricaFocus Bulletin by e-mail!         Read more on |Africa Economy & Development|
URL for this file: http://www.africafocus.org/docs05/eca0505.php

Print this page


Visit AfricaFocus Bookshop US | UK

Africa: Economic Growth Improving

AfricaFocus Bulletin
May 9, 2005 (050509)
(Reposted from sources cited below)

Editor's Note

"Africa's real GDP grew by 4.6 per cent in 2004, the highest in almost a decade, up from 4.3 per cent in 2003. ... [this] reflects a continued upward trend since 1998. Unfortunately, the growth has so far not been translated to employment creation or poverty reduction." - United Nations Economic Commission for Africa (ECA)

As African finance ministers and economic experts gather in Abuja, Nigeria this week for their annual consultations, reports concur in noting improved economic growth for last year and favorable continuing prospects. This summary conclusion, contrasting with media images of unrelieved crisis, reflects both stability in much of the region and increased world demand for African products.

However, the average results are accompanied by wide gaps among different countries, with oil-producing countries having the most favorable growth outlook. Most seriously, as the report prepared by the ECA for the Abuja meeting stresses, growth has been both quantitatively and qualitatively insufficient to create jobs and reduce poverty. In a statement issued in Dakar on May 7, the ministers stressed the urgency that rich countries deal with the overhanging debt burden that still blocks adequate longterm social investment. The Abuja meeting will also focus on how to improve aid coordination and other measures needed to deal with the fact that most African countries are falling far short of meeting the Millennium Development Goal targets for addressing poverty.

Another report released by the International Monetary Fund last month also approvingly cited high growth and low inflation in Africa. Among the obstacles it stressed to further growth, however, were falling world cotton prices and the removal of textile quotas that is expected to devastate recently expanded African textile exports.

This AfricaFocus Bulletin contains excerpts from the survey prepared by the Economic Commission for Africa. The full report and other documents prepared for the Finance Ministers' meeting this week, are available at
http://www.uneca.org/conferenceofministers/2005/documents.htm

The Regional Economic Outlook from the International Monetary Fund is available at
http://www.imf.org/external/np/sec/pr/2005/pr0586.htm

Previous AfricaFocus Bulletins on economic issues are available at http://www.africafocus.org/econexp.php

++++++++++++++++++++++end editor's note+++++++++++++++++++++++

Survey of Economic and Social Conditions In Africa 2004-2005

United Nations Economic Commission for Africa

[Excerpts only. PDF of full report, with footnotes and graphs, is available at
http://www.uneca.org/conferenceofministers/2005/documents.htm

E/ECA/CM.38/4 6 April 2005

This Survey was prepared by the Economic and Social Policy Division (ESPD) of ECA, for presentation at the Conference of African Ministers of Finance, Planning and Economic Development, 2005.

It is derived from the Economic Report on Africa 2005: "Meeting the Challenges of Unemployment and Poverty in Africa".

1. Overall Growth Performance

Africa's real GDP grew by 4.6 per cent in 2004, the highest in almost a decade, up from 4.3 per cent in 2003 (Figure 1). This improvement was underpinned by higher prices of commodities, including oil, stemming from a strong growth in global demand. In addition, good macroeconomic management, better performance in agriculture, the improved political situation in many countries, and increased donor support in the form of aid and debt relief contributed to this positive outcome. The favourable growth performance in Africa in 2004, furthermore, reflects a continued upward trend since 1998. Unfortunately, the growth has so far not been translated to employment creation or poverty reduction.

1.1 Subregional Performance

The escalation in growth between 2003 and 2004 on the continent was attributable to an improvement in the performance of sub-Saharan Africa (SSA), in contrast with 2002-2003 when the increase emanated from North Africa (Figure 1). Central Africa experienced the highest growth rate in 2004, followed by East Africa, North Africa, West Africa and Southern Africa (Figure 2). Contributing to West Africa's relatively slow growth was the decline in Nigeria's real GDP growth from 10.2 per cent in 2003 to 4.6 per cent in 2004.

Also contributing to the weak performance in West Africa was the ongoing political crisis in Cote d'Ivoire, which led to yet another year of slow real GDP growth (0.9 per cent in 2004). Furthermore, a locust invasion seriously affected the agricultural sectors of Mali, Niger and Senegal, contributing to their relatively low growth rates.

On the other hand, growth in six of the 15 West African countries was 5 per cent or higher, with Liberia leading the group with a real growth rate of 15 per cent, followed by the Gambia (6.6%), Sierra Leone (6.6%), Burkina Faso (5.4%), Cape Verde (5.4%), and Ghana (5.3%). Rising oil prices buoyed growth in North and Central Africa. Meanwhile, East and West Africa benefited from increased agricultural production, coupled with rising commodity prices. In Southern Africa, real GDP growth increased in 2004, mainly as a result of steady growth in South Africa, which benefited from strong global and domestic demand created in part by its low interest rate environment.

1.2 Fastest versus Slowest Growing Countries

2004 Growth Record

The fastest growing African countries in 2004 were Angola, Chad, Equatorial Guinea, Ethiopia, Liberia, and Mozambique (Figure 3). Liberia's strong performance must be placed in context, however, as a most recent post-conflict economy, Liberia grew from a relatively low base of output. In addition, its growth was buoyed by substantial external aid in support of its rebuilding efforts. Thus, the sustainable nature of the growth may be in question.2 The slowest growing economies in Africa were Central African Republic, Cote d'Ivoire, Gabon, Seychelles and Zimbabwe, (Figure 3). The poor performance was hampered by drought and an adverse political environment (Zimbabwe); continuing political turmoil (Cote d'Ivoire); and, despite the discovery of new oil fields and higher oil prices, a decline in oil production due to limited investments in upgrading existing fields (Gabon)

... the growth performance of the top and bottom performers has been fairly stable over the last half-decade. In effect, 14 African countries have been capable of sustaining their growth at 5 per cent or higher since 1999, a rate that puts them closer to meeting the estimated 7 per cent rate required to achieve the poverty-reduction goal ...

1.3 Internal Sources of Growth, 2004

The internal factors explaining the growth record in Africa in 2004 include: continued macro- stability based on prudent fiscal and monetary policy, an improvement in the current account balance due to rising commodity prices (including cash-crop agriculture) and receipts from tourism, as well as improved political stability in several African countries.

1.3.1 Macro-stability

Inflation Declined

On average, inflation in Africa declined from 10.3 to 8.4 per cent between 2003 and 2004. The favourable trend in inflation was due to prudent monetary and fiscal policies, good harvests and relatively stable and, in some cases, appreciating exchange rates. The average trend, however, masks country differences. Inflation declined in 29 African countries but increased in 20 countries. ...

Fiscal Deficits Eased

Fiscal deficits in Africa declined between 2003 and 2004; 32 countries either recorded surpluses or declines in their fiscal deficit. Of the 32 countries, 13 recorded surpluses while 19 experienced declines. Fiscal surpluses were concentrated in oil-producing countries; 8 of the 13 countries that experienced a fiscal surplus were oil producers. The success of African economies as a whole in improving their fiscal stance in 2004 was attributable to revenues generated from windfall gains in oil prices and prudent fiscal policies. Notwithstanding progress on the fiscal front, challenges remain for several African countries; 10 countries experienced deficits in excess of 5 per cent of GDP. ...

The Current Account Improved

Roughly, one-half of African countries (26 out of 51) experienced an improvement in their current account, which moved from a deficit of 0.1 per cent of GDP to a surplus of 0.4 per cent for the continent overall.

The favourable performance on the current account was due to strong growth in oil- and non-oil exports, and improved market access facilitated by initiatives such as the Africa Growth and Opportunities Act (AGOA) and the Everything But Arms (EBA) initiative. For instance, the combined value of the 37 eligible AGOA countries' exports to the USA grew by 38.1 per cent in 2004, up from $US24.4 billion in 2003. However, the strings attached to these preferential trading arrangements, in terms of rules of origin and time-bound preferential treatment, are constraints to export growth. Furthermore, the end of the Multi-Fibre Agreement (MFA) poses a challenge for African textile and garment producers, since it will open up the market to intense competition, particularly from highly competitive countries such as China, India and Pakistan. In effect, the contribution of textile and garment exports to the current accounts of African economies could be compromised as a result of the rollback of the MFA. ...

1.3.2 Tourism on the Rise

Tourism is fast becoming an important source of foreign exchange earnings in Africa. Receipts from the tourism sector were $US18.6 billion in 2003 (the latest year for which data are available), representing an increase of 19.2 per cent over 2002. Receipts per tourist arrival were estimated at $US510 in 2003. While these amount to only about one-half the per capita tourist expenditure in the Americas ($US1029), they nevertheless represent a significant source of income for African economies. Indeed, together with an enabling environment and delightful weather conditions, the low cost of touring Africa may be a positive factor that makes Africa the preferred destination for tourists.

1.4 External Sources of Growth, 2004

Among the external factors explaining African economic growth in 2004 are: increased flows of foreign direct investment (FDI) and overseas development assistance (ODA), as well as a rise in commodity prices induced by increased global demand. While rising oil prices were key in spurring growth in oil-producing African countries such trends posed a threat to the growth of non-oil producing African countries.

1.4.1 Strong Global Economic Growth

The global economy grew at 4.0 per cent in 2004, the strongest in two decades. Global growth was widespread but particularly robust in the United States and China, which experienced growth rates of 4.4 and 9.0 per cent, respectively. ...

1.4.2 Rising Commodity Prices

Africa's growth performance was spurred by rising oil and non-oil commodity prices. The commodity price index, denominated in US dollars, increased by 26.3 per cent in 2004 induced by increased demand from Asia, particularly China. Oil price changes accounted for the bulk of the commodity price increase, while metals and minerals and fertilizers contributed significantly to the rise in non-energy commodity prices. In contrast, the price of cocoa, coffee, cotton and groundnut oil declined between 2003 and 2004, on account of excess supply on the world market.

ODA to Africa recovered from a low of $US15.3 billion in 2000 to a new high of $US26.3 billion in 2003 (Figure 4). The recovery in ODA flows was largely driven by debt relief, provided through the Highly Indebted Poor Country (HIPC) initiative, and emergency assistance. ... By their per capita gross national income (GNI), Denmark (0.94), Norway (0.87), the Netherlands (0.81), Sweden (0.80) and Luxemburg (0.78) led the way in donations in 2001-2003. ...

1.4.4 FDI Flows are Up

Africa has been recording increased flows of FDI despite recent declines in FDI globally. FDI flows to Africa increased from $US12 billion in 2002 to $US15 billion in 2003 and were projected to rise to $US20 billion in 2004. FDI flows to Africa tend to be concentrated regionally (i.e., North Africa) and sectorally (i.e., in the extractive industries).

Two thirds of all flows to Africa went to North Africa where investments favoured oil-rich Libya, the Sudan and investor-friendly Morocco. In SSA, the preferred FDI destinations were: Angola, Equatorial Guinea, Nigeria and South Africa.

FDI flows to the service sector, at large, and the electricity and wholesale and retail subsectors in particular, have been on the rise in recent years challenging the dominance of the extractive industry. In particular, increased FDI flows to the service sector have been influenced by privatization and liberalization of the sector (e.g., telecommunications, electricity and water) and technological innovations that have increased the range of tradable services.

2. Some Areas of Concern

Notwithstanding the favourable growth performance in 2004, savings and investment remain low. Meanwhile, the depreciation of the dollar has contributed to the appreciation of the currencies of several African countries and threatens to undermine their international competitiveness. Global growth is, furthermore, expected to decline to 3.2 per cent in 2005 on account of rising crude oil prices, tighter fiscal and monetary policies in the USA to address the deterioration of its budget and current account deficits, and a cooling of the Chinese economy. A slowdown in global growth may have adverse implications for African countries.

2.1 Risk of currency appreciation

As a result of continued weakening of the US dollar, 30 African countries experienced appreciation of their currencies against the dollar in 2004. ...

2.2 Weak Domestic Investment

Investment in Africa is generally low. It barely exceeded 20 per cent of GDP during 2000- 2002.8 Only 11 out of the 50 countries for which data are available experienced high investment rates, that is, in excess of 25 per cent during 2000-2002, with a majority of these countries being oil-producing (Figure 5).

2.3 Low Domestic Savings

The low level of investment in Africa is partly due to the low savings rate in the region. On average, Africa had a savings rate of 21.1 per cent of GDP during 2000-2002. Only 11 of the 50 countries registered savings rates above the average for the region suggesting that even the average rate is dominated by the performance of a few countries (Figure 6). The low level of domestic savings deepens dependence on external aid and renders African countries vulnerable to the volatilities of FDI and ODA flows.

3. Prospects for Growth in 2005

Africa is projected to grow at 5.0 per cent in 2005, up from 4.6 per cent in 2004 (Figure 7). Growth is expected to be driven by the upturn in the growth prospects of 32 countries (including the largest 5 economies except Nigeria). Growth will be underpinned by continued macroeconomic stability; rising African exports in the context of strong, albeit slower, global growth; continued improvement in agricultural output, assuming continued good weather conditions; and vibrant growth in the tourism and mining subsectors.

Central Africa and Eastern Africa are expected to lead the growth process in 2005, while Southern Africa and West Africa are projected to grow at the slowest rate (Figure 7). Growth in Central Africa and Eastern Africa is, however, projected to be lower in 2005 than in 2004.

...

4. Growth, Employment and Poverty

4.1 Employment growth

Given the significance of employment as a source of income for the poor, increasing employment opportunities must be considered a critical element of poverty reduction initiatives. Sustained economic growth represents the route for creating "decent" jobs with above-poverty wages. Unfortunately, while real GDP growth in SSA has been on an upward trend since 1998, for example, employment growth has remained flat (Figure 8).

These trends suggest, then, that real GDP growth in SSA has not been sufficiently employment-intensive.

4.2 Poverty Trends

In 2003, for example, SSA had the highest poverty rate, while North Africa and the Middle East (MENA) experienced the lowest rate (Figure 9). Moreover, the poverty rate decreased substantially between 1980 and 2003 for all subregions with the exception of SSA, where the rate actually increased slightly.12 In addition, SSA was the only subregion where the proportion of the "working poor" increased during 1980-2003 (Table 2). This finding is likely explained by the fact that GDP growth in SSA during this period was barely enough to absorb population growth.

5. Progress Towards MDG [Millennium Development Goal] Targets

5.1 Overall SSA performance

The unsatisfactory performance of SSA in creating jobs and reducing poverty raises concerns about the subregion's progress in meeting the overall targets of the MDGs, practically all of which relate to social conditions. SSA's overall performance during 1990-2000, with respect to achieving the MDG targets, has been disappointing (Figure 10). Performance was particularly weak on halving poverty, reducing maternal mortality and increasing the primary education completion rate, though there appears to be significant progress on meeting gender equality education targets, as well as on access to improved water sources.

5.2 Subregional and country-level performance

The apparently dismal performance at the regional level, however, masks subregional and country-level differences. North Africa, for example, is singled out as a subregion with a remarkable progress towards achieving the MDGs (Figure 11). It is also noteworthy that several countries are projected to achieve each of the goals. Nonetheless, the majority still lag behind, and special efforts will be required to ensure that they can achieve the MDGs.

6. Conclusion and Policy Recommendations

The country-level MDG performance of African countries is cause for "unrelenting concern" but not for "despair". Africa's favourable real GDP performance in recent years is a welcome development, especially when placed in the context of historically low levels of growth. Sustainable growth in Africa will require policy interventions at the economic, social, and political levels.

6.1 Economic

At the economic level, priority must be given to:

  • Minimizing dependency on the vagaries of the climate, through agricultural transformation; Reducing exposure to commodity price shocks via export diversification; Consolidating macroeconomic stability through prudent fiscal and monetary policies underpinned by effective expenditure tracking systems and an efficient public sector;
  • Mobilizing domestic savings to finance investments, through macroeconomic stability and measures to deepen financial and capital markets;
  • Maximizing job creation by minimizing constraints to private sector investments and growth (e.g., complementary public investments in roads, utilities, etc., and minimization of red-tape);
  • Minimizing the unpredictability of ODA flows by negotiating greater donor coordination and commitment to streamline aid delivery modalities and, where relevant, ensuring greater effort on the part of African countries to fulfill mutually agreed benchmarks with donors; and
  • Accelerating efforts of regional cooperation to effectively harness global forces for development.

6.2 Social

Social-level interventions must be guided by the goal of improving the health and human capital of the citizenry. This can be achieved by:

  • Maximizing physical and financial access to health systems by the poor, through cost-effective investments in social services, including the design of financially sustainable social safety nets;
  • Addressing the adverse effects of major diseases such as malaria, and especially halting the spread of HIV/AIDS as well as addressing the needs of people living with AIDS; and
  • Investing in education and ensuring that human capital (acquired either through formal education or skills training) is relevant to the workplace; and putting in place effective policies to retain human capital and reverse the brain drain.

6.3 Political

On the political level, the overriding objectives should be:

  • Securing peace and security through the development of credible democratic processes and institutions, including the respect for the rule of law and the rights and liberties of the citizenry; providing for the rule of the majority while respecting the rights of minorities;
  • Making special provisions for the least-developed countries and post-conflict economies; and
  • Optimizing global partnerships to level the playing field in the trade arena; as well as developing and maintaining the capacity for infrastructure development and effective management.


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

AfricaFocus Bulletin can be reached at africafocus@igc.org. Please write to this address to subscribe or unsubscribe to the bulletin, or to suggest material for inclusion. For more information about reposted material, please contact directly the original source mentioned. For a full archive and other resources, see http://www.africafocus.org