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Africa: Economic Trends Date distributed (ymd): 011119 Document reposted by APIC
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Region: Continent-Wide Issue Areas: +economy/development+
SUMMARY CONTENTS:
This posting contains excerpts from two summaries of the current economic situation in Africa, produced recently by the World Bank and the International Monetary Fund. The sources for the full reports, which appear in PDF format and include tables, are given below for each summary. Note that the projections in these summaries are highly uncertain, and that the IMF in particular sharply reduced its global forecasts in a new statement on November 15.
Another posting today contains a press release and statement from Africa Action, on the occasion of the meeting of the World Bank and the International Monetary Fund in Ottawa, November 17-19, 2001.
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World Bank
Sub-Saharan Africa
Excerpted from Regional Economic Prospects (Appendix
1) Global Economic Prospects and the Developing Countries
2002 http://www.worldbank.org/prospects/gep2002
Recent developments
Growth in Sub-Saharan Africa (SSA) slowed to 2.7 percent in 2001 from 3 percent in 2000, interrupting a progressive recovery from the slowdown of the late 1990s. With population growing at 2.4 percent, the rise in per capita GDP was minimal. The slowdown was widespread throughout the region, in East, West, and Southern Africa, and in both oil and non-oil commodity exporters.
The primary cause was the slowdown in developed countries. In the face of weaker demand from the United States and the Euro Area, merchandise exports managed just 3.4 percent growth in volume terms compared to 8.8 percent in 2000. Services exports, including tourism, were also affected, growing by 3.6 percent. Commodity prices remained well below levels of the late 1990s, including those that rebounded from recent lows. Beverage producers were particularly hard hit, with coffee prices down over 25 percent from 2000 and cocoa prices-although they were up around 10 percent in 2001-only 75 percent of the average for 1995-2000. While oil prices eased back from their peak of nearly $30 a barrel in mid-2000 they remained strong, and oil exporters outperformed the region as a whole, growing at an average of 3.6 percent for the year, compared to 2.6 percent for non-oil exporters. Oil constitutes less than a third of SSA exports, however, and net energy exports are only 5 percent of GDP. Thus on balance, recent world commodity market trends represented a major drag on growth and incomes.
Apart from the external environment, developments within the region painted a mixed picture. Better weather boosted agricultural production and household incomes in a number of countries in East and Southern Africa, including Ethiopia, Kenya, Mozambique, and Tanzania. However, localized drought conditions persisted in these and many other countries. In Southern Africa, food production fell by as much as 25 percent, due to both adverse weather conditions and civil disturbance. Overall, the Food and Agriculture Organization of the United Nations (FAO) estimates that the need for food aid will be unchanged from last year at around 2.7 million tonnes (FAO 2001). Weather also contributed to a 12 percent reduction in the cocoa crop in West Africa after the bumper harvest of 1999-2000, according to the International Cocoa Organization (African Business, July/ August 2001).
In the political sphere, some progress toward stability was achieved in the Democratic Republic of Congo, Guinea, and Sierra Leone, but peace seemed as elusive as ever in Angola, Liberia, and the Sudan, and Zimbabwe's crisis intensified with the approach of elections in spring 2002. Countries in conflict or experiencing severe governance problems recorded the worst performances, growing at -0.4 percent in 2001. On the plus side, robust growth continued in a number of countries, including Ethiopia, Madagascar, Mozambique, and Uganda, reflecting better policy and economic management. Finally, 19 countries reached decision points under the enhanced Heavily Indebted Poor Countries Initiative, cutting debt servicing costs by a third, and relaxing balance of payments and budgetary pressures.
In South Africa, the region's largest economy, a robust recovery in the second half of 2000 dissipated in the first half of 2001 as inadequate rains led to a disappointing maize harvest. The impact spilled over from agriculture into manufacturing and, on the demand side, into consumer spending, and growth slowed to 2.4 percent. ...
In Nigeria, the energy sector registered strong gains, thanks to both oil and natural gas revenues and to keen investor interest, particularly in the offshore sector. However, it is increasingly evident that progress on reforms to date has had little impact on the non-oil economy. A one-year, $1 billion standby credit from the IMF was extended from August to October despite the government's failure to meet important conditionalities, but especially with the approach of elections in late 2002, the future of the reform process is uncertain.
Near-term outlook
While many idiosyncratic factors will bear on near-term performance, the slowdown in industrial countries during 2001 and sluggish recovery in the first half of 2002 virtually guarantee a poor out-turn for the coming year. Weak demand will continue to depress export prices and volumes. However, as recovery consolidates in OECD trade partners, demand for the region's exports will strengthen setting the stage for stronger gains in 2003. For the region as a whole, merchandise exports are expected to grow by only 2.9 percent in 2002, while terms of trade fall by 6.2 percent, equivalent to 1.8 percent of GDP. The subdued external performance will hold GDP growth to 2.7 percent for a second year, again leaving per capita incomes flat. Oil prices are expected to fall to $21 a barrel in 2002, implying steep terms-of-trade losses for oil exporters of 4.1 percent of GDP; their real growth will average 3.1 percent, down from 3.6 percent in 2001. However, other commodity prices should firm on average, even though non-oil exporters' terms of trade deteriorate slightly because of higher import prices. The modest improvement in the external environment will raise non-oil exporters' growth to 2.7 percent from 2.6 percent 2001. For the SSA region as a whole in 2003, the forecast anticipates a strong acceleration in export volume growth to 6.4 percent, pushing GDP growth to 3.9 percent. With decent rains, the actual outcome might be even better. Nevertheless, terms-of-trade weakness is expected to persist through the forecast period, especially for oil exporters, as oil prices fall further to below $20 a barrel.
Despite weak energy prices, substantial investment in oil exporters promises to sustain real growth in oil sectors in the medium term. Nigeria has struggled recently to meet OPEC quotas, but plans to increase capacity significantly over the next few years and a second liquid natural gas train at Bonny Island will boost production by 50 percent beginning in 2002. Meanwhile, recent offshore discoveries could substantially raise medium-term production and exports for non-OPEC Angola and Equatorial Guinea. Even in the near term, exploration and development activity- including the Chad-Cameroon pipeline project-is helping to offset terms-of-trade losses, keeping real growth higher than otherwise would have been the case. For non-oil exporters, faster world growth will tighten the supply demand balance in primary commodity markets allowing export prices and terms of trade to strengthen. In addition to the rebound in the world economy generally, export prospects will also benefit from a number of specific trade initiatives, including the United States' Africa Growth and Opportunities Act (AGOA), the EU's "Anything but Arms" initiative, and the EU-South Africa Free Trade Agreement. Early evidence from the first half of 2001 shows that 13 SSA countries benefited from $3 billion of exports under AGOA preferences (USTR 2001). Nonetheless, SSA's medium term performance will remain subdued as a result of inelastic export demands and a lack of diversification.
Long-term prospects
Over the long term, the expectation is for a continuation of the trend toward better economic policies and management and a broadly favorable external environment. Internal market reforms, deregulation, and privatization have raised productivity and improved incentives, and encouraged nontraditional exports such as fish and horticulture at a time when prospects for many traditional crops are poor. Notably a number of well-managed reformers have sustained high growth even through difficult external conditions. In the baseline scenario, which assumes a continuation of current productivity trends, output growth averages 3.7 percent from 2004- 10. With population growth falling to 2.2 percent, real per capita income growth will average 1.5 percent, reaching $640 in real (1995 dollars) terms by 2010. For many countries, export diversification and favorable price trends will sustain performance well above the regional average.
This performance will fall short of what is needed to achieve the international development goals, and SSA will continue to lag behind other regions in the developing world. Low domestic savings combined with only modest private foreign capital inflows will limit investment rates to an average of below 19 percent of GDP. Although up from barely 17 percent currently, this is far from what is needed. As a result, capital accumulation will contribute less than 1 percent annually to growth-not even a quarter of the rate anticipated for East Asia. Low rates of human capital investment and slow progress on rebuilding infrastructure will hold productivity growth to around the same rate.
Despite the somewhat pessimistic outlook, if the forecast is accurate the coming decade will see the region's best sustained performance since the 1960s. ... Political and economic reforms have gained pace since the mid-1980s, and are contributing to higher standards of governance and economic management. Private sector growth and increasing regional integration are helping to boost efficiency and rationalize production. Greater openness and debt relief are relaxing balance of payments constraints, easing import restrictions, and over time encouraging more foreign investment interest. But even as some countries notch up high growth rates, overall performance will continue to be constrained by the devastating effects of HIV/AIDS, slow progress on governance in some countries, and the limited availability of resources to rehabilitate productive capacity and infrastructure.
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International Monetary Fund
Africa: Supporting Growth and Poverty Reduction
Excerpted from Chapter 1 of World Economic Outlook, October 2001 http://www.imf.org/external/pubs/ft/weo/2001/02 Released September 26, 2001
Growth in Africa is projected to reach close to 4 percent this year, driven by a substantial improvement in the Maghreb region- especially as Morocco recovers from drought-and a more modest increase in activity in sub-Saharan Africa. Inflation is expected to remain subdued in the Maghreb, as well as most countries of sub-Saharan Africa, although it remains a concern in some countries -notably in Angola, the Democratic Republic of Congo, and Zimbabwe, but also in Ghana and Nigeria. While the regional current account deficit remains small-reflecting large surpluses in oil and gas producers-many sub-Saharan African countries continue to experience large deficits, in part driven by weak nonfuel commodity prices, high oil prices, and still high external debt servicing costs.
With exports accounting for more than one third of African GDP, the global slowdown will weaken external trading conditions- particularly trade with the European Union, which absorbs around 40 percent of the region's exports. More significant though for external balances and economic activity in most African countries are market conditions for individual commodities-which are not well correlated in all cases with the global cycle. In the energy-producing countries, including Algeria and Nigeria, high oil and gas prices continue to support growth in domestic demand and improvements in fiscal and external balances. At the same time, these gains risk being cut short by looser macroeconomic policies-notably but not exclusively in Nigeria-particularly if the oil market were to weaken further. Most nonfuel commodity prices remain weak. Among food and beverages, the most significant development has been the severe drop in coffee prices-down more than 60 percent since 1997-which has contributed to weak export growth and high external trade deficits in Kenya and Uganda. Agricultural commodity prices have also come down substantially since 1997, including cotton (a key export of Benin, Chad, and Mali) and tobacco (important for Malawi and Zimbabwe). Prices of aluminum and copper-of particular significance for Mozambique and Zambia, respectively-have declined since the beginning of 2001 and could fall further as global demand weakens, although recent increases in these countries' export volumes are helping to offset the lower prices. The prolonged decline in gold prices continues to weigh on export earnings of South Africa.
Global and commodity market developments notwithstanding, local influences still play the dominant role in the economic prospects of most African countries. In particular, the outlook for private investment, economic diversification, and longer-term growth is generally brighter in countries that have pursued sound macroeconomic and structural policies. Reflecting this, relatively strong growth-around 5 percent and above-is expected to continue in Botswana, Cameroon, Mozambique, Tanzania, and Uganda. In contrast, poor policy performance, often combined with political uncertainty and/or conflict, has markedly adverse effects on prospects for sustained growth and for reductions in poverty. ...
The central challenge remains how best to improve the environment for growth and investment, particularly through improving public service delivery-including education and poverty relief; promoting conflict resolution and prevention; strengthening infrastructure; liberalizing trade, to reverse Africa's declining share in world trade; and improving governance. The main responsibility for such progress must, of course, lie with African governments themselves: recent developments are encouraging in this regard, including the New African Initiative, which emphasizes the principles of African ownership, leadership, and accountability in eliminating home-grown obstacles to sustained growth. These efforts are being supported by the enhanced initiative for Heavily Indebted Poor Countries (or HIPC Initiative); through June 2001, 23 countries, mainly in Africa, had qualified for and begun to receive debt relief totaling some $34 billion-implying that on average their debt-to-GDP ratios will be halved. Annual savings in debt service will represent about $1 billion on average in the initial years, which is substantially exceeded by the increase in social spending of more than $1 / 2 billion-mainly on health and education, including programs to combat HIV/ AIDS. For many sub-Saharan countries, the HIV/ AIDS pandemic represents the largest threat to medium-term growth. In addition to the HIPC initiative, encouraging progress has been made in lowering the costs of antiretroviral drug therapies and in providing support through the International Partnership against AIDS in Africa, drawing together African governments, the United Nations, and public, private, and community sectors internationally. But, given the scale of the problem, an enormous effort lies ahead-including developing the health sector infrastructure to support advanced treatments, providing further financial support to countries affected, and stepping up HIV/ AIDS awareness and prevention efforts.
Looking at the three largest economies of the region, South Africa's vulnerability to external shocks has been substantially reduced as a result of sound macroeconomic policies, with public spending effectively restrained, the budget deficit limited to around 2 / 2 percent of GDP, and inflation expected to come back within the target range of 3 to 6 percent. These policies have helped sustain recent gains in external competitiveness and have enabled the Reserve Bank to lower its benchmark interest rates by 100 basis points in June. Furthermore, higher private capital inflows-including receipts from the sale of De Beers -have allowed the Reserve Bank to lower its net open forward position to $5 billion as of mid-2001, down from $22.5 billion in 1998. Short-term prospects have been weakened by the global slowdown, however, given South Africa's relatively strong trade and financial linkages with the advanced economies. In addition, regional uncertainty has increased as a result of the ongoing economic and political difficulties in Zimbabwe. Major challenges lie ahead. As in many other African economies, extremely high unemployment (over 35 percent in South Africa) and minimal progress in raising per capita incomes underscore the need for wide-ranging structural reforms to improve the investment climate, boost employment, and raise growth to a rate that can make sizable inroads on poverty. ...
In Nigeria, the spending of windfall gains from higher oil prices has led to a substantial boost to activity. But serious macroeconomic imbalances threaten these gains: sharply higher government spending, especially at state and local levels, has been accompanied by rapid monetary expansion, a surge in inflation, and disorder in the foreign exchange markets. Efforts to restore macroeconomic stability, particularly by restraining public spending at all levels and saving a larger portion of oil proceeds, remain an urgent priority. ...
Algeria's fiscal and external balances have also improved significantly as a result of strong growth in oil revenues. But, with a substantial share of oil revenues being set aside in a stabilization fund-expected to total close to 20 percent of GDP by the end of 2001-and sustained monetary discipline and low inflation, Algeria should be able to avoid the same extent of boom- bust cycle that Nigeria may face. ...
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Message-Id: <200111191630.LAA13199@server.africapolicy.org> From: "Africa Action" <apic@igc.org> Date: Mon, 19 Nov 2001 12:20:06 -0500 Subject: Africa: Economic Trends
Editor: Ali B. Ali-Dinar
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