Africa continues steady growth

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+ OECD Development Centre, Paris 2 years ago
Progress in the achievement of the millennium development goals remain limited and SSA Africa is unlikely to achieve them. 2008 is an important year because it is mid-way from the target of 2015. In regional terms, SSA is the only region in the world where the number of poor has increased in the last decade.

Of course there are remarkable exceptions: Tanzania and Ghana have made dramatic progress in reducing poverty, especially the latter. Madagascar, Malawi, Tanzania and Eritrea in reducing child mortality (where progress overall have been the most disappointing), a lot of countries have increase access to primary education to over 90 per cent and progress has also been achieved in the gender balance in education and in politics (in Rwanda 49% of parliamentarians are women); As for the reduction of maternal mortality, Maurice has achieved the goal and 14 countries are on track. Water and Sanitation: Senegal, Malawi and Uganda.

However, a lot more need to be done.
+ OECD Development Centre, Paris 2 years ago
The rising costs of living have fuelled social unrest in many countries of the continent. Those unrests have turned into riots in the case of Senegal, Burkina Faso and Cameroon, countries considered as traditionally stable.

As a result, despite the long term declining trend in political instability, instability picked up again in 2007. Troubles increased in traditionally unstable countries (Sudan - Darfour, Somalia, Kenya, DRC, Chad) but also in stable ones.

Multiparty elections have taken place in several African countries and progress towards participative democracy is encouraging. However, massive abstention was recorded in several countries, and in Nigeria and Kenya the electoral results have been contested. In Cameroon President Biya succeeded in passing a highly contested constitution change in order to allow him to run for a third mandate. These episodes show that the road towards participative democracy is still long and democratic institution remain very fragile.

♦ Progress in economic governance is still insufficient, with corruption continuing to hamper socio-economic development. However, encouraging progress have been recorded in the fight against corruption and in the general commitment to improve governance, as witnessed by the progress achieved in the APRM process.

In 2007, Angola signed the African Union Convention on Preventing and Combating Corruption, bringing the number of African signatory countries to 41 out of 53 since 2003. In addition, thanks to the 6 new ratifications, including Ethiopia, Ghana, Kenya, Liberia, Senegal and Zambia the convention can now enter into force. Since high levels of corruption are often associated with high political instability, the fight against corruption remains a benchmark for the stabilisation of the continent.

The AEO indicators cover 35 African countries in five African sub-regions gathered on a weekly basis.The objective is not to address the issue of conflicts in countries that are already affected, but to provide early warning and risk indicators for countries that are still relatively stable. As such, none of the countries covered is in a situation of open war, although one or two might drift towards such a situation.

The AEO suggests a strong correlation between conflict and political regime, with governments reacting to troubles by hardening their stance – limiting the freedom of association and constraining the action of political opponents for instance. It also conveys the idea that this political response has an adverse impact on economic performance by deterring private investors from engaging in business.
+ OECD Development Centre, Paris 2 years ago
Recently a new threat emerged in the continent: the energy crises

Overall, it is estimated that some 25 countries are currently at risk of an energy crises.

Reasons for this crises:

Rising production, fostered by high commodity prices, is putting the energy supply capacity under severe preassure in a large number of African countries

Adverse climatic conditions (drought in West and East Africa, relying on water for hydro-electric energy production).

High oil prices have rendered energy production more expensive (West Africa relying on oil imports for energy production).

Overall, investment in power generation and distribution has been inadequate over the past 20 years.

War has devastated the power grid in Congo, in Africa’s heart, and stalled plans to develop its vast hydroelectric potential. In Kenya, Tanzania, Uganda and parts of West Africa, drought has shrunk rivers and slashed the generating capacity of hydroelectric dams. Drought in Ghana, for example, has crippled gold and aluminum production and set off blackouts in Togo and Benin, which buy power from Ghana.

This crises has been recently exacerbated by the recent severe shortages experienced by South Africa (that generally fills the gaps of its neighbors with cheap energy) as well as the political crises in Kenya which disrupted transits routes, affecting oil supplies and aggravating the already serious energy shortages for the surrounding countries.

Examples:

Nigeria: Only 19 of 79 power plants work, daily electricity output has plunged 60 percent from its peak, and blackouts cost the economy $1 billion a year, according to the Council for Renewable Energy in Nigeria.

South Africa, failed to build power plants that experts warned were needed. The government monopoly Eskom, the world’s fourth-largest power utility, was advised in a 1998 report that it would run short of power in 2007, but planning and financing problems - not all within the utility’s control - stalled upgrades

Consequence of chronic energy shortages: negative effect on production, competitiveness (raising costs), but also for poverty reduction and improvement in basic services delivery.

Projects to respond to the crises:

South Africa: Independent power producers (IPPs) are expected to provide approximately 1000 MW of new generation capacity by the beginning of 2009. Eskom will purchase electricity from the IPPs through long-term contracts. Further significant increases in generation will not result in additional production until 2012, however, so the government hopes to cover the deficit by increasing imports and curtailing demand for power

Mozambique: Mozambique’s state-run PetroBeira has started building fuel storage tanks in the port city of Beira at a cost of $45 million. The tanks, with a capacity of 80,000 cubic metres, will store products derived from oil or biofuels, which would be sold to Botswana, Zimbabwe and the Democratic Republic of Congo.

Zimbabwe: there are also projects to revive the Zimbabwe energy plants with the support of surrounding countries.
+ OECD Development Centre, Paris 2 years ago
Best performers (average growth 2000-07):

Tanzania: 6.7%; Ghana: 5.2 %‘; Tunisia: 4.9 %

Thinking that oil importers are not doing fine in terms of growth would still be misleading. Although the aggregate figure is lower than for oil exporters, still there are outstanding performers.

Outstanding performers managed to keep growth sustained over the years, thanks to good macroeconomic management and fruitful efforts to diversify their economy. This concern resource rich countries like Ghana, but also resource poor countries like Cape Verde or Ethiopia. As a consequence of this sustained and wide spread growth, poverty was dramatically reduced. Ghana will be the only Sub Saharan country to reduce poverty by half by 2015 and Cape Verde graduated in January 2008 from the Least Developed Countries group.

However, the quality of growth remains an issue also for this group of country. Mozambique is a good example of extremely high sustained growth rates (8.6 average growth 2001-07), but of poor quality: growth is driven by mega projects that do not create significant spill-over effects in the rest of the economy; as a result, growth is not broad-based and poverty levels are stagnating over the same period (2001-07).

Many countries remain highly dependant on ODA: in 13 African countries ODA represents more than 20% of total revenues and in 18 countries ODA is more than 30% of capital expenditure. The most dependant on ODA are Mozambique, Rwanda , DRC and Malawi (more than 40% of revenue and more than 70% of investment expenditure). Many others follow closely.

Growth volatility is a problem for some countries. Ex: Senegal. Sharp setbacks in growth can be even worse than prolonged moderate growth rates. In Senegal growth has been very volatile, with setbacks in 2000, 2002, 2006 and 2007, due to structural deficiencies in the management and organisation of main export sectors (groundnut production and chemical industry).

Rising food prices is a threat for many oil importing countries in Africa, that are also suffering from the increase in energy prices.

International grain prices have increased a lot since mid 2006, with a spectacular hike since the second half of 2007, especially for rice. FAO food price index increased by 23% in 2007 and by 41% for cereal.

Main causes: rising demand for food fuelled by raising income in emerging economies and consequent reduction in global stocks; indirect impact of oil prices on production costs (transport, fertilisers), climatic shocks (drought) possibly exacerbated by climate change; biofuel production; speculation.

The impact is twofold: on households and on macroeconomic stability.

The macroeconomic impact is visible in the trade balance, but also in the fiscal balance if governments are implementing short terms measures to absorb the shock, like subsidies, price control or reduction of import tariffs. In this sense, high food prices, coupled with high energy prices, pose a new threat on their macroeconomic stability. Exemples: Ethiopia and Egypt are giving subsidies; Morocco, BFA, Cameroon and Senegal are reducing import tariffs; Cameroon and Senegal are reducing VAT.

However, these impacts are not homogeneous and the more the countries are dependant on imports for food and oil, the more the impact will be important.

Food imports represent more than 60% of total imports in Guinea Bissau, Gambia; more than 40 % in Congo, DRC, Cape Verde and Benin; more than 30% in Senegal( and 50% of food consumption), Eritrea; more than 20% of total imports in DRC, Sierra Leone, Central African Republic Guinea, Mozambique, Angola and Congo.

Although short terms interventions are needed (with the support of donors) solutions must be taken with a long term perspective: it is necessary to increase the productivity of local agriculture, including and especially for rice, and to foster R&D in agriculture. This is valuable for biofuel (in order to reduce the impact of biofuel production on crop cultivated areas) and for agriculture in general, to make it sustainable from an environmental point of view. In this context, climate change should seriously be taken into consideration. Start thinking about the creation of broader safety nets, also with the support of donors. Foster regional integration to facilitate the free circulation of goods and people. Indeed, some African countries are producing a lot, stock are there and can redistributed (negative example: BFA has stopped exports and this has made prices increase further, although they have plenty of stocks).
+ OECD Development Centre, Paris 2 years ago
Outstanding achievers:

Angola: 11.8% average growth 2000-07 Algeria: 4% average growth 2000-07

Let’s look more closely at what is hidden in each group of countries, and at some aspects bearing on the quality of growth.

Although for the majority of oil exporting countries growth for 2007 has been above the average for Africa, still there are important difference in the quality of this growth.

Among the outstanding performers there is certainly Angola, whose growth rate has been double digit since 2004. beside growth, Angola also managed to progressively normalise its economy, after almost 30 years of civil war and encouraging signs of spill-over effects from the oil sector to the rest of the economy have recently appeared, with increasing investment both in the productive sectors (especially construction) and in infrastructure rehabilitation.

Although Algeria has not a rate of growth path as impressive as Angola , its growth rate has been sustained since 2002 (with the exception of 2006) and the country wisely managed its oil windfall, creating a development fund and repaying the totality of its external debt.

However, growth for oil exporters faces serious shortcomings: the disappoint performance of some of oil exporting countries highlights their vulnerability to growth volatility, dramatically dependant on the oil sector performance . Moreover, since oil is a non-renewable resource, the size of their potential and proven reserves is determinant for their growth perspectives and for oil producers with well established oil fields this has started to become a problem.

Exemple: Congo had a recession in 2007 simply because a single accident occurred in one (of the most important) oil fields. Gabon oil production is structurally decreasing because its oil fields are old.

Social unrest has been an additional factor harming the performance of some oil exporters

Exemple: in 2007 Chad once again broke the agreement with the WB and increased defence expenditure instead of allocating 70% of oil revenues to priority sectors. Nigeria experienced an increased in social unrest that entailed a reduction by 25 % in oil production in 2006 and in 2007 the oil sector performance was even worse.
+ OECD Development Centre, Paris 2 years ago
An aggregate picture of African growth masks important differences among countries: net oil exporters continue to outpace oil importers by far.

In 2008, the average real GDP growth rate for oil exporters is expected to be 6.8 per cent, but it will only be 4.9 per cent for importers; and these are only averages – the gap between individual countries is even wider.

Oil and gas producers as a group are benefiting not only from the higher prices but from increased production in countries such as Angola, Equatorial Guinea, and Libya.

However, this gap is expected to narrow in 2009 because of a big reduction in growth for Angola, constrained by the recently agreed quota with OPEC (production will reach a plateau in 2009 and accelerate again in 2010), while non-oil importers countries, such as Kenya, South Africa and also Senegal, will recover from a slowdown in their growth in 2008.

2006: 31 countries over 5 %

2007: 25 countries over 5%

2006: 7 countries between 3-5%

2007: 13 countries between 3-5%
+ OECD Development Centre, Paris 2 years ago
Another factor of growth is certainly the continued improvement in economic policies and, as a result, in macroeconomic stability.

The fiscal balance turned positive in the continent in 2004 and has progressively improved so far; inflation has been drastically reduced and, thanks to commodity boom, many countries have been able to accumulate foreign reserves, reducing their vulnerability to short term external shocks.

Exemple of fiscal balance improvements: South Africa from -2% in 2000 to 1% surplus in 2007; Malawi from -7% in 2000 to -1.5% in 2007; Ethiopia from -9.3% in 3000 to -3.1% in 2007; Cape Verde from -7.8% in 2000 to -2.3%.

Inflation has decreased dramatically: Exemples: Angola from hyperinflation in early 2000 to 11.8% in 2007; DRC from hyperinflation in early 2000 to 9.5% in 2007; Ghana from 25.2% in 2000 to 9.4% in 2007; Malawi from 29.6% in 2000 to 9.5% in 2007; Zambia from 26.1% in 2000 to 10.8% in 2007.

Foreign reserves increased considerably reducing vulnerabilty to external shocks.

This improvement concerned post-conflict countries, such as Angola, DRC and Mozambique, but also other countries like Ghana, Zambia and South Africa.
+ OECD Development Centre, Paris 2 years ago
But let’s have a look at the drivers of growth. Well they’ve been manifold.

Like last year, commodity prices rise continues to play a very important role, especially for oil and metal prices.

Despite expectations, the oil price continued to rise at record high level, reaching 72.7 USD/B , up from 65.4, an increase of 11% (it is now expected to reach 200 USD by the end of the year).

Metal prices overall increased by 13 % in 2007 and this benefitted countries like Zambia (copper), South Africa (gold), Mozambique (aluminium), Namibia (iron).

Soft commodity prices increased as well, especially Robusta coffee (due to a disruption in the production in Vietnam) but overall they grew much more slowly that metals and oil.

These prices are pushed and maintained at historically high levels by a very dynamic demand, from Asian emerging countries especially.

NB: the graphs shows the WB prices used for our forecasts. However now we know that prices continued to rise also in the first half of 2008. They will probably go down only in 2009).
+ OECD Development Centre, Paris 2 years ago
The general picture for Africa remains favourable. In 2007 the continent experienced the fifth consecutive year of sustained growth, which settled at 5.7%. The outlook is positive as well, since growth is expected to reach almost 6% both for 2008 and 2009.

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Africa continues steady growth - Presentation Transcript

Louis Kasekende Chief Economist African Development Bank 27 June 2008 UNECA
Growth Africa continues steady growth Total OECD Africa Source : OECD Development Centre / African Development Bank, 2008 Real GDP Growth
- Real GDP growth expected to exceed 5% for the sixth consecutive year in 2008 , and reach 5.9%
- 2007: 25 countries over 5%
- 2008: 31 countries over 5%
- 2007: 13 countries between 3-5%
- 2008: 16 countries between 3-5%
- Growth in 2009 will remain sustained at 5.9%
Drivers The commodity boom: a key driver for Africa Global commodity prices 2001-2009 Source : OECD Development Centre / World Bank, 2008
Drivers Improved macroeconomic framework * Excluding Zimbabwe ** Estimations for 2007 and predictions for 2008/09 Source : OECD Development Centre / African Development Bank, 2008 Fiscal Balance % GDP Current account % GDP Inflation Average 2000-04 Average 2005-09** Average 2000-04 Average 2005-09** Average 2000-04 Average 2005-09** Central 1.6 8.6 Central -3.2 3.2 Central 14.6 4.6 East -2.2 -3.2 East -4.3 -7.5 East 6 8.7 North -1.2 6 North 5.6 13.2 North 2.6 5.2 South -2.5 1.6 South -1.2 -1.7 South* 14.4 6.8 West -0.5 4.5 West -2.7 3.3 West 10.3 7.8 AFRICA -1.5 3.4 AFRICA 0.8 3.8 AFRICA* 8 6.4
Growth Oil exporters and importers: future re-convergence? Source : OECD Development Centre / African Development Bank, 2008 Net Oil exporters : Algeria, Angola, Cameroon, Chad, Congo, Côte d'Ivoire, Congo DRC, Egypt, Equatorial Guinea, Gabon, Libya, Nigeria, Sudan Real GDP Growth
- Growth rates for oil importer and oil exporter countries diverged significantly in 2007 and 2008
Growth will remain strong in 2008 with 31 countries showing GDP growth above 5%
- However, this difference is set to narrow in 2009, due to:
Oil Exporters Performance and threats Source : OECD Development Centre / African Development Bank *: African Economic Outlook forecasts … but poor diversification & governance Strong growth…
- Oil-exporting countries have a historical opportunity to pull ahead, yet many remain mired in poor governance, not using oil windfalls to finance broad development.
- Good performers’ assets:
- Sustained and prolonged growth
- Improving macro management
- Rising Investment in non-oil sectors
- Challenges:
- Poor diversification and governance
- Structural declining productivity of oil fields
Oil Importers Performance and threats Source : OECD Development Centre / African Development Bank *: African Economic Outlook forecasts
- Oil-importing countries have performed well, diversifying their sources of growth over recent years. However, rising inflation, food prices and lower global demand for non-resource exports signal rougher waters ahead.
- Good performers’ assets :
- Challenges:
Good performance… … yet challenges rising
Challenges Energy crises threaten prospects Natural causes Oil price shock Conflict / Post-conflict High growth/ low investment / structural issue Source : Briceno-Garmendia (2006); Eberhard and others (2008). Countries Vulnerable to Energy Shortages:
- Installed capacity in SSA is insufficient to respond to high growth rates and increasing demand
- 25 countries currently experiencing severe energy shortages.
- Crises have been worsened by South Africa shortages, Kenyan political crisis, droughts and high oil prices.
- A combination of high growth and low investment in energy infrastructures has created severe bottlenecks to development
Liberia
Challenges Is political instability still declining in Africa? Qualitative data obtained from Marchés Tropicaux et Méditerranéens. Data is used to construct two indicators referring to: Political instability : occurrence of strikes, demonstrations , violence and coup d’état. Hardening of the political regime : incarcerations of opponents , measures threatening democracy such as dissolution of political parties, violence perpetrated by the police and the banning of demonstrations or public debates. AEO political stability indicators Political troubles and regime hardening Regime Hardening (LHS) Source : OECD Development Centre
MDGs Slow progress, despite growth Source : OECD Development Centre / African Development Bank, 2008 Goal 1 Goal 2 Goal 3 Goal 4 Goal 5 Goal 6 Goal 7
Louis Kasekende Chief Economist African Development Bank 27 June 2008 UNECA