Get AfricaFocus Bulletin by e-mail!
More on politics & human rights |
economy & development |
peace & security |
Print this page
Visit AfricaFocus Bookshop US |
Africa: Economic Outlook
Apr 13, 2008 (080413)
(Reposted from sources cited below)
This is the season for economic reports, and, as usual, the message
is mixed. The Economic Commission for Africa (ECA) and the
International Monetary Fund (IMF) cite 2007 growth rates of 5.8%
for Africa and 6.5% for sub-Saharan Africa, respectively. Both
note, nevertheless, that few African countries are on track to
halve poverty by 2015. The IMF predictably proposes a privatesector
emphasis in response, while the ECA lays out a wider range
The World Bank and the Food and Agriculture are stressing the
structural crisis caused by rising food prices, and propose some
new remedies, both immediate and medium-term..
This AfricaFocus Bulletin includes excerpts from reports on
Africa's economic outlook released by the UN Economic Commission
for Africa (UNECA) and the International Monetary Fund (IMF).
Another AfricaFocus Bulletin sent out today contains a press
release from the World Bank on the food price surge and the Bank's
response, excerpts from a speech by World Bank President Robert
Zoellick, and a report on new Food and Agriculture Organization
proposals for changes in food security operations and planning.
For previous AfricaFocus Bulletins on economic issues see
Many thanks to those of you who have recently sent in a
voluntary subscription payment to support AfricaFocus Bulletin. If
you have been intending to do so, now is a good time. Help
AfricaFocus reach more people with reliable information on Africa.
Send in a check or pay on-line with Google Checkout or Paypal. See
http://www.africafocus.org/support.php for details.
++++++++++++++++++++++end editor's note+++++++++++++++++++++++
Economic Report on Africa 2008
Economic Commission for Africa
Developments in the World Economy and Implications for Africa
In 2007, world economic growth slowed to 3.7 per cent from 3.9 per
cent in 2006. High prices for oil and other inputs combined with
some turbulence in financial markets have contributed to this
slowdown. ...Africa has maintained the strong growth momentum of
the last few years and achieved a 5.8 per cent growth rate in 2007,
up from 5.7 per cent in 2006 and 5.2 per cent in 2005. For 2008,
world growth is projected to be around 3.4 per cent.
One if the important developments in the world economy that is of
high relevance for Africa is the rapid increase in South-South
trade and capital flows. Foreign Direct Investment (FDI) from the
South increased from just 5 per cent of world outward flows in 1990
to 17 per cent in 2005. FDI to Africa is increasingly coming from
Asia, especially China, India and the Gulf States. At the same
time, FDI flows within Africa increased substantially in 2006,
mainly originating in South and North Africa. These flows are
concentrated in the natural resource and services sectors.
The intensification of ties with Asia in terms of aid, trade and
FDI holds both benefits and challenges for Africa. African exports
to China have more than quadrupled between 2000 and 2005 to $19.5
billion. Asian growth expands export markets for African and
creates new opportunities for employment creation in local and
foreign firms. However, African manufacturing firms confront the
risk of losing local markets if they are not able to compete with
imports from Asia.
The continent also needs to promote high-quality growth that is
broadly shared in terms of generating decent employment, poverty
reduction and achievement of the Millennium Development Goals
(MDGs). The recorded real per capita income growth rate (0.3 per
cent during 1990-2002 and 3.0 per cent per cent in 2003-2007) is
insufficient for Africa to make any significant progress towards
achieving the MDGs. Its ability to accelerate and sustain
high-quality growth hinges crucially on successful diversification
of the sources of growth and mobilization of domestic and external
financial resources, used to increase domestic demand in general
and investment demand in particular.
Fiscal sustainability is a major concern, especially for
The average fiscal position of Africa, which shows a budget surplus
of 2.4 per cent of Gross Domestic Product (GDP) in 2007, is mainly
a reflection of developments in the 13 oil-exporting countries that
maintained an average fiscal surplus of 5.3 per cent of GDP in 2007
and 6.1 per cent in 2006. For the oil-importing African economies,
the average budget deficit increased slightly from –1.1 per cent of
GDP in 2006 to –1.2 per cent in 2007. The largest budget-deficit
countries are generally exposed to recurrent internal shocks (e.g.
rainfall irregularities and political conflicts) and also external
shocks (e.g. agricultural commodity markets).
... Given the important adverse effects of expenditure reduction on
growth and social development, it is critical that donors and the
international development community at large should scale-up
financial support to oil-importing African countries, especially in
the form of grants and debt relief.
Inflationary pressure is intensifying due to high oil prices
High oil prices pose a major threat to Africa regarding the control
of inflation in both oil-exporting and oil-importing countries.
Africa seems to be more exposed to this threat than other
developing regions. On average, inflation has been contained at
around 7 per cent over the last 5 years, but Africa's inflation has
generally been greater than that of Latin America and the
Caribbean, East and South Asia and the average for developing
Whereas high oil prices push production costs up for oil-importing
countries causing prices to increase, rising oil revenues fuel
rapid increases in domestic demand that cause prices to rise in
oil-exporting countries (overheating). Intensifying inflationary
pressure is a major concern for the poor, who lack adequate safety
nets, as high inflation rates always have stronger impact on the
price of basic consumer goods. ...
Oil-exporting countries must direct a sizeable proportion of oil
revenues to finance domestic investment. This will help them to
build productive capacity instead of fuelling government and
private consumption. Such consumption creates excess demand while
the economy still does not have the capacity to respond. ...
The need to reduce external debt and increase non-debt generating
To alleviate financing constraints, Africa needs to reduce external
debt and mobilize more domestic and external non-debt-generating
resources. Despite debt relief initiatives, Africa's external debt
remains high and unchanged, at about $255 billion in 2006 and 2007.
While official debt declined considerably with the debt relief
initiatives, from $205.7 billion in 1999 to $144.5 billion in 2007,
the debt owed to banks and other private creditors rose from $92.4
billion in 1999 to $110.2 billion in 2007.
As domestic resource mobilization is insufficient for Africa to
finance the investment needed for achieving the MDGs, African
countries continue to rely on external capital inflows (mainly
Official Development Assistance (ODA), FDI and remittances) to fill
the resource gap in the near future. However, FDI inflows tend to
go mainly to resource-rich countries to finance investment in
extractive industry, whereas more ODA flows are directed to
financing development in non-oil economies. The international
community is urged to meet its commitments to scale-up aid to
Africa under various initiatives such as the Multilateral Debt
Relief Initiative (MDRI). ...
Economic growth recovery in Africa has not yet translated into
meaningful social development and inclusion of vulnerable groups
Growth in Africa has not yet led to substantial employment
generation, particularly in the formal sector. ...
Prospects for 2008: brighter outlook despite risks
Real economic growth in Africa is projected to slightly improve to
6.2 per cent in 2008 compared with 5.8 per cent in 2007. It is
expected that the slowdown in the US economy will not have a
substantial effect on Africa and that robust commodity demand and
prices will continue with high growth in Asia and no significant
drop in growth in Europe. ...
Development Challenges for Africa in 2007
... Currently, few countries in the region are on track to meeting
the MDGs. However, there have been positive developments in recent
years that give hope that the challenge of meeting the MDGs on the
continent is not insurmountable. Progress requires scaling-up of
efforts both at national and international levels. ...
Acceleration of progress towards the MDGs is constrained by a
number of important challenges that require the concerted efforts
of African governments and their development partners. These
challenges include climate change, infrastructure bottlenecks and
rising inequality. Climate change poses a major threat to Africa's
future and is likely to have a significant impact on biodiversity
and to increase the vulnerability of poor people to natural
disasters. The poor state of infrastructure in Africa is a major
impediment to domestic market and regional integration, to
equitable access to social services, and to growth. Expansion of
infrastructure has positive growth effects that would help the
continent accelerate progress towards the MDGs.
Evidence suggests that income inequality is rising in African
countries, with the continent ranking second to Latin America as
the region with the most unequal distribution of income. Rising
inequality constrains growth while reducing the gains from growth
for the poor, thus undermining progress towards poverty reduction.
Post-Monterrey economic performance has improved but remains
insufficient to finance the MDGs
Since the dawn of the new millennium, several promises have been
made by Africa's development partners as part of an overall effort
to scale-up resources for development in the continent. The
Monterrey Consensus, the World Summit Outcome, the Paris
Declaration and the G-8 Gleneagles Declaration capture the main
commitments in this area. These commitments were all driven by the
need to accelerate progress towards meeting the MDGs.
Midway between the adoption of the MDGs and the 2015 target date,
the available evidence indicates that the vast majority of African
countries will not meet the goals if current financing trends
continue. Consequently, the international community has now focused
attention on how to scale-up financing for the continent. It has
been acknowledged that implementation of the commitments in the
Monterrey Consensus is critical to achieving this objective.
- In the area of domestic resource mobilization, there has been a
modest increase in domestic savings, although it has not led to an
increase in investment. This observation from macroeconomic data is
consistent with findings from the ECA Survey of African
Policymakers on the Monterrey Consensus, which shows that
mobilization of domestic resources for development has been rather
- Some progress has also been made in the mobilization of
international resources for development. Net FDI flows to the
continent increased from an average of $11.9 billion in the
pre-Monterrey period (1998-2001) to $18.1 billion in the postMonterrey
period (2002-2005). However, FDI continues to be
concentrated in the extractive sector and in a few countries.
- There has also been an increase in remittances. African countries
need to adopt a coherent and comprehensive policy aimed at
attracting such Diaspora capital to complement domestic resources
and external aid. African countries also have to harness the
potential of remittances for development and improve access to
financial services to make it easier and more cost efficient for
people to use the banking system and other formal channels to
receive remittances from abroad.
To increase their shares of investment from global FDI flows,
African countries need to develop not only better infrastructure
but must also improve investment climate. In addition, they need to
be selective in the type of investment they seek to attract. Most
needed are FDI flows into sectors with high-value added, high
potential for employment creation, and environment- friendly
impact. Efforts should also be made to give non-discriminatory
treatment to domestic investors in the drive to attract private
- Limited progress in promoting international trade as an engine of
The share of exports in GDP increased from 29 per cent in the
pre-Monterrey period to 33 per cent in the post-Monterrey period,
but Africa's share in international trade remains low, and there
has been little progress in improving its international trading
environment. The findings from the survey show that, of all the
areas of the Monterrey Consensus, African countries are most
concerned about the lack of progress in international trade.
- Aid quantity has improved but is still below the levels required
to finance accelerated and sustained growth
Macroeconomic data indicate notable progress in terms of increasing
aid quantity and improving aid effectiveness. Results from the
Survey of African Policymakers on the Monterrey Consensus that was
conducted by ECA in 2007 show that a substantial majority (76 per
cent) of respondents somewhat or strongly agreed with the statement
that there has been a significant reduction in the proportion of
tied aid. Aid remains concentrated in a few countries, with
emergency assistance and debt relief accounting for the bulk of aid
Thus, African countries have not received the promised additional
injection of resources for financing development. More
disconcertingly, there is a wide gap between the actual aid flows
and the donor commitments that were made. The quantity of aid is
still below what is needed to ensure accelerated and sustained
growth in the continent.
- In the area of debt relief, significant progress has been made
over the last two years, thanks to the implementation of the
Heavily Indebted Poor Countries (HIPC) initiative and the MDRI. It
is, therefore not surprising that African policymakers consider
this to be the only area of the Monterrey Consensus where progress
has been significant. Thanks to these debt relief initiatives, many
of them now view their country's external debt situation as
The first main conclusion of this Report is that African countries
have recorded strong economic performance for the third consecutive
year, with an average growth rate of 5.8 per cent. ...
The second is that despite high growth rates in recent years, this
strong performance has not translated into meaningful gains in
terms of social development. ...
The third is that persistently high oil prices remain an important
challenge to growth and macroeconomic stability in the medium term.
Increased energy costs are constraining investment and growth in
many oil-importing African countries ... Oil-exporting countries on
their part need to manage oil revenues to ensure diversification of
the sources of growth ...
Fourth, African governments and partners need to establish
strategies to ensure that economic growth benefits socially
excluded groups, including women, youth, the aged, and people with
disabilities. ... In the longer term, a more inclusive society will
help countries remain politically and socially stable and enhance
their growth potential.
Finally, the evidence on implementation of the Monterrey Consensus
suggests that substantial progress has been made in the area of
external debt relief. In contrast, very limited progress has been
made in the other core areas of the Consensus. ...
Africa's Economic Expansion Faces Downside Risks
IMF Survey online
Growth in sub-Saharan Africa (SSA) is expected to average about 6.5
percent again this year, driven by oil exporters, while inflation
in 2008 is projected at about 8.5 percent, up from 7.25 in 2007.
Although the region's economic expansion is expected to continue,
risks are tilted to the downside. The external environment has
become less favorable - with growth slowing in advanced economies,
higher oil prices, and unsettled global financial markets which
could hurt growth in SSA. The IMF's Sub-Saharan Africa Regional
Economic Outlook -Spring 2008 (REO) says that, in light of these
risks, there is about a one-in-five chance that the region's growth
will drop to less than 5 percent in 2008.
Growth in SSA's oil exporters is expected to accelerate to about 10
percent this year, underpinned by production at oil facilities
coming onstream in Nigeria and Angola and a new liquefied natural
gas plant in Equatorial Guinea. Higher income and wealth are
expected to be the main drivers of domestic demand in these
In countries that are not oil exporters, the picture is mixed, with
average growth a bit lower than last year. With the slowing of the
global economy, growth in the middle-income countries is expected
to register only about 4 percent this year and, in low-income
countries, about 6 percent. The fragile countries, buoyed by a
continued recovery in investment, should see growth pick up to 5
percent in 2008, up from 3.25 percent in 2007.
A pronounced global slowdown would weaken the prices of non-oil
commodities and represent a large shock for SSA. Higher oil prices
would reduce domestic demand, boost headline inflation, and worsen
the current account and net foreign asset positions of net oil
importers. Finally, less favorable financial conditions would
reduce external financing and put the brakes on growth.
In addition to these external risks, SSA faces significant internal
risks. Although the number of conflicts has declined in recent
years, they still ravage the Darfur region of Sudan and the Horn of
Africa. Moreover, conditions remain fragile in the Democratic
Republic of Congo, and post-election violence in Kenya has taken a
The region's most pressing challenge over the medium term will be
to accelerate growth and achieve the Millennium Development Goals.
But, although more SSA countries are enjoying robust growth, only
a few seem well positioned to halve poverty by 2015.
The spring 2008 REO focuses on the challenge of strengthening the
private sector to spur investment in SSA. The region's future
economic performance will hinge on the implementation of reforms
that improve the investment climate, reduce the cost of doing
business, and strengthen governance. A few countries have made
encouraging progress on this front, with Kenya and Ghana leading
the way on broad-based reforms, including easing business
regulation, procedures for property administration, and licensing
requirements. In southern Africa, Madagascar, Mauritius, and
Mozambique have lifted regulatory obstacles that weighed heavily on
the private sector. ...
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 firstname.lastname@example.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